Al-Abbas Sugar Mills Limited

Al-Abbas Sugar Mills Limited (PSX: AABS) was formed in 1991 and was incorporated as a public limited company in 1992. The company is engaged in the manufacturing of sugar and ethanol. AABS also operates a chemical & alloys division and a power & tank terminal.

Pattern of Shareholding

As of September 30, 2024, AABS has a total of 17.362 million shares outstanding which are held by 1107 shareholders. Associated companies, undertakings, and related parties have the majority stake of 33.83 percent in the company followed by directors, CEO, their spouses, and minor children holding 24.37 percent shares. The local general public accounts for 15.81 percent of shares of AABS. Around 4.2 percent of shares are held by Banks, DFIs, and NBFIs, and 3.14 percent by NIT & ICP. The remaining shares are held by other categories of shareholders.

Historical Performance (2020-2024)

Except for a year-on-year dip in 2021, the AABS topline has been ascending over the period under consideration. Conversely, its bottom line dropped twice during the period i.e. in 2021 and 2024. AABS’s gross margin ticked up in 2020 while its operating and net margins slid. This was followed by a drastic decline in all the margins in 2021. The subsequent two years saw tremendous progress in the company’s margins. However, in 2024, all the margins were significantly tapered. The detailed performance review of the period under consideration is given below.

In 2020, AABS’s net sales posted a year-on-year rise of 13.8 percent. Due to the imposition of lockdown in the HORECA industry as well as offices, educational institutions, and commercial businesses, the demand for sugar fell in 2020. AABS sold 56,810 M tons of sugar in 2020, down 3.11 percent year-on-year. However, due to the increase in prices of sugar on account of curtailed production, the company recorded a 20.28 percent increase in revenue from the sugar segment in 2020. During the year, there was a sudden increase in the demand of ethanol due to its use in hand sanitizers and cleaning products. However, the company couldn’t take optimum benefit of the situation resulting in a 23 percent decline in the sales volume of ethanol which clocked in at 31,908 M tons in 2020. However, increased prices of ethanol due to high demand particularly in the international market, coupled with the Pak Rupee depreciation yielded growth of 9.27 percent in the revenue of the ethanol division. Cost of sales picked up by 12 percent in 2020 particularly due to an increase in the prices of raw materials as well as high electricity & fuel charges. AABS was able to record 19.27 percent higher gross profit in 2020 with GP margin climbing up from 24.64 percent in 2019 to 25.82 percent in 2020. Distribution expenses dropped by 19.97 percent in 2020 due to reduced sales volume and also because of the high-base effect as the company exported sugar last year. Sugar is only allowed to be exported if there is surplus production in the country which was not the case in 2020. Administrative expenses ticked up by 5.65 percent in 2020 mainly on account of higher payroll expenses due to inflationary pressure while the company streamlined its workforce from 947 employees in 2019 to 939 employees in 2020. Other expenses surged by a massive 225.22 percent in 2020 due to the provision of Rs.274.405 million booked on sugar export subsidy. Other expenses were partially offset by 106.74 percent higher other income recorded in 2020 predominantly due to higher income from TDRs, T-bills, and PLS accounts. AABS recorded a 12.49 percent improvement in its operating profit in 2020; however, OP margin slightly dipped from 17.66 percent in 2019 to 17.46 percent in 2020. Finance cost nosedived by 17.15 percent in 2020 due to lower outstanding short-term borrowings. The gearing ratio fell from 31.81 percent in 2019 to 18.84 percent in 2020. Net profit picked up by 11.9 percent to clock in at Rs.1244.347 million in 2020 with EPS of Rs.71.67 versus EPS of Rs.64.05 recorded in 2019. NP margin slightly dipped from 15.52 percent in 2019 to 15.26 percent in 2020.

In 2021, AABS recorded an 8.98 percent plunge in its net sales. During the year, the sales volume of sugar fell by a massive 38 percent to clock in at 35,213 M tons. However, revenue from the sugar segment increased by 28.8 percent in 2021 due to sky-rocketed prices of sugar in the local and international markets. While there was increased demand for sugar in the local market, AABS couldn’t take advantage due to curtailed production on account of the limited availability of sugarcane. Other companies also met a similar fate and the government had to import 350,000 M tons of sugar in 2021. Sales volume of ethanol dipped by 1.57 percent in 2021 to clock in at 31,406 M tons. This was due to the lower demand for ethanol due to the lesser demand for hand sanitizers and cleaning products after the development of the COVID-19 vaccine. Despite falling demand, the company was able to achieve a healthy sales volume of ethanol by changing the sales mix of ethanol and focusing on bulk sales. The high cost of raw materials as well as elevated fuel & electricity charges resulted in 4 percent increase in the cost of sales. This resulted in 46.34 percent thinner gross profit in 2021 with GP margin falling down to 15.22 percent. Distribution expenses plummeted by 63.87 percent in 2021 due to lower sales volume particularly lesser export of ethanol during the year. Administrative expenses mounted by 20.75 percent in 2021 particularly due to higher salaries and other benefits of CEO. The number of employees was reduced to 873 in 2021. Other expenses tapered off by 78.21 percent in 2021 as the company didn’t record any provision for sugar export subsidy, unlike last year. Other income thinned down by 8.14 percent in 2021 due to lower income on TDRs, T-bills, and PLS deposits on account of monetary easing. AABS recorded 35.4 percent lower operating profit in 2021 with OP margin clocking in at 12.39 percent. Finance costs escalated by 59.84 percent in 2021 due to huge working capital borrowings. This drove the gearing ratio up to 38.91 percent in 2021. AABS recorded a 39.57 percent weaker bottom line to the tune of Rs.751.929 million in 2021. This translated into an EPS of Rs.43.31 in 2021.

AABS’s net sales registered a staggering year-on-year growth of 39.63 percent in 2022. During the year, the sales volume of sugar increased by 19.45 percent to clock in at 42,062 M tons and the sales volume of ethanol increased by 32.48 percent to clock in at 41,607 M tons. During the year, there was handsome yield of sugarcane crop, resulting in ample supply in the market. However, the government increased the support price of sugarcane from Rs.202 per 40 kg in 2021 to Rs.250 per 40 kg in 2022. Conversely, the price of sugar dropped during the year due to excess availability. Due to higher sales volume, revenue from the sugar segment grew by 7.39 percent in 2022. During the year, the company also exported huge quantities of ethanol which resulted in a 66 percent improvement in the company’s export sales. The cost of sales surged by 27.52 percent in 2022 due to inflationary pressure, high electricity tariff, Pak Rupee depreciation, and a spike in the minimum support price of sugarcane. Gross profit strengthened by 107 percent in 2022 with GP margin picking up to 22.57 percent. Export transportation and other expenses resulted in a 32.42 percent surge in distribution expenses in 2022. Conversely, administrative expenses nosedived by 1 percent due to a drop in CEO salaries & other benefits. AABS further squeezed its workforce to 866 employees in 2022. Other expenses slid by 4.63 percent in 2022 due to receivables written off during the year and also because of the reversal of provision for WWF recorded during the year. Other expenses were conveniently offset by 87.37 percent stronger other income recorded during the year. This was the result of receipts against insurance claims. This was due to a fire incident that occurred on account of a short circuit in the distillery’s electric panel room. Besides this, the company also lodged an insurance claim for business interruption. AABS’s operating profit mounted by 141.41 percent in 2022 with OP margin jumping up to 21.42 percent. Finance cost multiplied by 99.92 percent in 2022 due to monetary tightening as well as increased short-term borrowings obtained during the year. However, the gearing ratio dipped to 21.83 percent in 2022 due to higher short-term investments and robust equity on the back of stronger accumulated reserves. AABS recorded a net profit of Rs.1913.689 million, up 154.5 percent year-on-year in 2022. EPS clocked in at Rs.110.22 in 2022.

In 2023, AABS’s topline grew by 40.60 percent year-on-year. While sugar volume grew by 1.27 percent to clock in at 42,598 M tons in 2023, ethanol sales volume took a 2.2 percent dip to clock in at 40,691 M tons. During the year, the sugarcane crop was not encouraging due to persistent floods. Revenue from the sugar division grew by 26.49 percent in 2024 due to permission granted for sugar export by the government due to excess availability in the local market. Depreciation in the value of the Pak Rupee boosted the revenue proceeds from export sales. Moreover, prices in the local market also increased as the government increased the minimum support price of sugarcane to Rs.302 per 40 kg. Despite a downtick in ethanol sales volume, its revenue proceeds grew by 42.80 percent due to Pak Rupee depreciation. Tremendous exchange gain wiped the effect of the cost hike, resulting in a 112.70 percent enhancement in gross profit in 2023. GP margin attained its optimum level of 34.15 percent in 2023. Export transportation and other expenses resulted in an 181.82 percent spike in distribution expenses in 2023. Administrative expenses posted a paltry year-on-year growth of 7.73 percent in 2023 due to higher payroll expenses which were partially offset by lower salaries & other benefits of the CEO. Higher payroll expense was the outcome of inflationary pressure as well as human resource induction which took AABS’s workforce to 890 employees in 2023. Other expenses hiked by 196.89 percent in 2023 due to higher profit-related provisioning and provision for loans to growers. Other income eroded by 18.62 percent in 2023 due to the high-base effect as the company recorded receipts against insurance claims in the previous year. Operating profit mounted by 97.43 percent in 2023 with OP margin jumping up to 30 percent. A higher discount rate resulted in a 123.18 percent surge in finance costs in 2023. Outstanding borrowings slid during the year which coupled with higher short-term investments and stronger equity pushed the gearing ratio down to 1.21 percent. Net profit multiplied by 92.54 percent to clock in at Rs.3684.617 million – the highest bottom line ever recorded by the company. This culminated in an EPS of Rs.212.22 and an NP margin of 25.29 percent.

AABS registered a paltry 13.31 percent uptick in its net sales in 2024. During the year, the sales volume of sugar inched up by 1 percent to clock in at 43,029 M tons as export was curtailed to keep a check on the local supply-demand balance. Conversely, the ethanol division posted a reasonable 16.22 percent increase in sales volume which clocked in at 47,291 M tons in 2024. Revenue from the sugar division grew by 27.11 percent in 2024 mainly on account of the higher price of sugar. This was in line with the increase in the minimum support price of sugarcane to Rs.425 per 40 kg. Revenue from the ethanol division grew by 10.83 percent in 2024. Despite the higher sales volume of ethanol, export revenue didn’t post hefty growth owing to the stable value of the Pak Rupee against the greenback. The cost of sales mounted by a whopping 34.41 percent due to inflationary pressure, high support prices, and elevated power tariffs. This culminated in a 27.4 percent drop in gross profit in 2024. GP margin also drastically fell from its peak level recorded in 2023 to 21.88 percent in 2024. 202.13 percent hike in distribution expenses in 2024 was the result of higher export volumes. Administrative expenses ticked up by 5.37 percent due to high inflation while the workforce was squeezed to 765 employees in 2024. Other expenses plunged by 38.3 percent in 2024 due to fewer provisions done for WWF, WPPF, and loans to growers. Other income inched up by 1.19 percent in 2024 due to robust dividend income and gains from mutual fund investments. AABs recorded a 47.75 percent slide in its operating profit in 2024 with OP margin falling down to 13.87 percent. Finance costs mounted by 34.7 percent in 2024 due to monetary tightening. While outstanding debt posted a dip in 2024, lesser short-term investment drove the gearing ratio up to 14.52 percent in 2024. Net profit tapered off by 57.91 percent to clock in at Rs.1550.682 million with EPS of Rs.89.31 and NP margin of 9.39 percent in 2024.

Recent Performance (First quarter ended December 2024)

AABS posted an 18.6 percent thinner topline in the 1QFY25. During the period under consideration, sales volume of sugar grew by a substantial 30.42 percent to clock in at 21,465 M tons. However, lower prices of sugar didn’t allow the revenue from the sugar division to grow proportionately. Ethanol sales wreaked more havoc on the AABS’s topline. Ethanol sales volume for the period was recorded at 10,877 M tons, signifying a dip of 24.49 percent. This was further aggravated by lower selling prices of ethanol in the international market coupled with a stronger Pak Rupee. The cost of sales surged by 9.32 percent in 1QFY25 due to higher sugarcane support prices and high electricity tariffs. Gross profit declined by 77.5 percent in 1QFY25 with a drastic fall in GP margin which clocked in at 8.89 percent versus GP margin of 32.15 percent recorded during the same period last year. Lower export volume resulted in a 69.92 percent drop in distribution expense in 1QFY25. Conversely, administrative expenses inched up by 4.4 percent due to inflation. Other expenses shrank by 46.65 percent in 1QFY25 due to lesser profit-related provisioning. Other income also posted a 12 percent plunge during the period probably due to lesser mark-up income on account of monetary easing. AABS recorded a 77.78 percent contraction in its operating profit in 1QFY25 with OP margin clocking in at 6.95 percent versus OP margin of 25.45 percent recorded in 1QFY24. .Finance cost slumped by 34.26 percent in 1QFY25 due to a lower discount rate and a dip in outstanding borrowings. AABS net profit dwindled by 85.33 percent to clock in at Rs.164.35 million 1QFY25. This translated into EPS of Rs.9.47 recorded in 1QFY25 versus EPS of Rs.64.53 recorded during the same period last year. NP margin also fell from 19.1 percent in 1QFY24 to 3.44 percent in 1QFY25.

Future Outlook

The provincial governments have decided to deregulate the sugar industry. As a part of it, the government did not set the minimum support price of sugarcane and let it be determined by market forces. This will bode well for the sugar industry and allow them to address rising production costs. Besides, monetary easing as well as improvement in other macroeconomic fundamentals in the local market will also be beneficial for AABS. Reportedly, the government is mulling over the imposition of FED on the sugar sector. If implemented, it will increase the prices of sugar which have already increased by Rs.11 per kg ahead of Ramadan.