Abdullah Shah Ghazi Sugar Mills Limited

Abdullah Shah Ghazi Sugar Mills Limited (PSX: AGSML) formerly Al-Asif Sugar Mills Limited was incorporated in Pakistan as a private limited company in 1984 and then was converted into a public limited company in 1990. The company is engaged in the manufacturing and sale of refined sugar and its by-products. The manufacturing plant of AGSML is located in Gharo, district Thatta, Sindh and has a total installed capacity of 3000 TCD. AGSML was acquired by Macca Group in 2008.

Pattern of Shareholding

As of year ended September 30, 2022, AGSML has a total of 79.261 million shares outstanding which are held by 1912 shareholders. Haq Bahu Sugar Mills Private Limited of Macca Group, is the major shareholder of AGSML with a stake of 78.5 percent in the company. This is followed by Local general public holding 21.15 percent shares of AGSML. The remaining shares are held by other categories of shareholders each accounting for less than 1 percent share in AGSML.

Performance Trail (2018-22)

The topline of AGSML which took a 29 percent year-on-year jump in 2019 tamed down to Rs.58.43 million in 2020, signifying a 62 percent year-on-year drop. In the subsequent two years, the company didn’t make any sales, however, since 2021; the company has been making other income, the element which was missing before. Maybe the company has identified some alternate source of income amidst halted principal activity of cane crushing. It should also be noted that in all the years under consideration, the company has never even recorded a gross profit, let alone a positive bottomline. Let’s find out the underlying tale behind this bizarre financial performance.

In 2019, while the revenue from white sugar posted a 42 percent year-on-year rise, the revenue from molasses dropped by 13 percent. This culminated into a topline growth of 29 percent year-on-year in 2019. The topline growth came on the back of price increase as the sales volume considerably dropped during the period. There remained persistent scarcity of sugarcane in the entire lower Sindh in 2019, the result of which were only 38 crushing days of AGSML in 2019 compared to 70 crushing days in 2018. During 2019, AGSML produced only 1755 tons of sugar which is 43 percent lesser than what it produced in the previous year. Lesser cane crushed during the year also lowered the cost of sales of the company by 10 percent year-on-year, however, the company could still note make any gross profit in 2019. However, the magnitude of gross loss dropped by 29 percent year-on-year to clock in at Rs.174.26 million in 2019. Operating expenses posted a marginal uptick of 6 percent year-on-year in 2019 on the back of fee, subscription and renewals and vehicle running and maintenance. Operating loss dropped by 26 percent year-on-year. Finance cost also grew by 28 percent year-on-year on the back of high discount rate. The finance cost isn’t only payable to banks but also to the holding company which has advanced a subordinated loan to AGSML while it is grappling against liquidity crunch due to constant losses. AGSML recorded a net loss worth Rs.54.02 million in 2019 which is 83 percent less than what it posted in the previous year. The loss margin dropped from 272 percent in 2018 to 35 percent in 2019. Loss per share also dipped to Rs.0.68 in 2019 from Rs.4.07 in the previous year.

The topline dropped by 62 percent year-on-year in 2020 to clock in at a mere Rs.58.43 million. The company didn’t make any sale from molasses while the sale of white sugar also posted a significant downturn. AGSML which was already suffering from shortage of sugarcane in its surrounding area faced further supply chain disruptions owing to COVID-19. The cost of sales also dipped by 20 percent year-on-year in 2020. The only major element visible in the cost of sales is depreciation. All other cost components have massively dropped during the period. The gross loss magnified by 16 percent year-on-year to clock in at Rs.202.40 million in 2020. Distribution and administrative expense also plunged as there were no stacking and restacking charges. Moreover, all other components of operating expenses also slumped except depreciation. Finance cost kept growing during the year due to high discount rate in the initial months of 2020 coupled with markup on WWF and WPPF booked during the year. The net loss magnified by over 288 percent in 2020 to clock in at Rs.209.30 million with a loss per share of Rs.2.64. the net loss margin blew up to 358 percent in 2020.

In 2021 and 2022, the company didn’t make any sales of white sugar and molasses. The cost of sales mainly comprises of depreciation as well as salaries and wages. Administrative expenses mainly comprise of fee, subscription and renewal fee, legal and professional fee as well as depreciation. It is to be noted that the company made other income worth Rs.92.41 million in 2021 which shrank to Rs.0.24 in 2022. This represents the markup on outstanding loan payable to Summit Bank which was written back and is no longer payable. The net loss magnified to Rs.222.15 million and Rs.320 million in 2021 to 2022 respectively. The loss per share clocked in at Rs.2.80 and Rs.4.04 in 2021 and 2022 respectively. The company was also declared blacklisted by the Trading Corporation of Pakistan (TCP), as it failed to perform the awarded contract of 13,350 tons of sugar with the state-run grain trader for supplying sugar.

Recent Performance (1Q ending December 2022)

With the suspended principal activity of sugar crushing, the fate of AGSML’s topline looks no different in the first quarter of FY23, however, the bottomline is in the positive territory. The cost of sales posted a 48 percent year-on-year increase in 1QFY23. While the breakup of cost is not yet available, we can assume that the rise came on the back of depreciation as was the case in 2021 and 2022. During the quarter, the company restructured its debt with the financial institutions particularly BankIslami debt of Rs.275 million restructured with 10 years’ timeline. Finance cost grew by 17 percent year-on-year mainly on the heels of increased long-term borrowings during the year coupled with high prevailing discount rate. Increased long-term borrowings may be because of debt restructuring with many banks to increase the tenure of the outstanding debt.

The Rs. 140 million other income recorded by the company in the 1Q was mainly the reversal of outstanding liability. This reversal allowed the company to record a positive bottomline of Rs.21.51 million in the 1Q despite no revenue made during the period. The EPS clocked in at Rs. 0.27 per share in 1QFY23 as against the loss per share of Rs.0.44 during the same period last year.

Future Outlook

The company has finally started crushing in the current season 2022-23. With the wheels started churning, the topline will register growth, however, with the scarcity of funds available to AGSM on account of failed commitments with the financial institutions against the debt commitments, whether or not the company can procure and crushenough cane and make enough sales to push its bottomline to the profit zone is yet to be seen.