J.D.W Sugar Mills Limited was founded in 1990 in Rahim Yar Khan. Its market capitalisation is north of Rs 18 billion, making it the only sugar company in the KSE100. As far as sugar companies go, the next-largest by market cap is Habib Sugar with just over Rs 6 billion.
From its Rahim Yar Khan unit, the company expanded over the years and went on to acquire two more units; JDW Unit 2 (formerly United Sugar Mills) came into being in 2005, while JDW Unit 3 (formerly Ghotki Sugar Mills) was incorporated in 2006. The latter boasted a recovery of 10.55 percent in its first year of operations - the highest in the country.
While sugar manufacturing is its core business, JDW recently branched out and added two other segments to its business; corporate farming and co-generation. In corporate farming, the company has set up efficient and ecofriendly farms with higher yields. This has led to the capacity building of existing farmers, thereby resulting in improved and reliable cane supply to the company.
For co-generation, the company has set up two bagasse-based, high-pressure cogeneration power plants with a total capacity of approximately 53 MW. One of these is based in JDW Unit 2 and was commissioned in June 2014, while the other was inaugurated at Unit 3 in October 2014. JDW's financial year starts in October and ends in September.
The sugar industry, much like most industries in Pakistan, is highly regulated. In FY11, the procurement price (Punjab) of sugarcane was raised from Rs 100 per 40kg to Rs 125. This was again raised to Rs 150 in FY12, before settling at Rs 170 for the next two fiscals. This sharp rise in the factor costs has been eating away the margins. Moreover, JDW (or Pakistan, in general) does not have much of a sugar export market. This leaves sugar manufacturers wholly and solely at the mercy of the domestic market.
On a more positive note, JDW's sugar mills have some of the best recovery rates and have managed the highest recovery in Pakistan on many occasions. The graph shows how the company's sugar production has been constantly increasing.
Costs were dealt a blow when the support price of sugarcane was increased by Rs 10 during the quarter under review. In spite of this, JDW managed a phenomenal 60 percent increase in its gross profit, and gross margins shot up by 500 bps year-on-year. Finance cost increased by 66 percent owing to higher borrowings for the cogeneration projects and business acquisition. But despite the increases in finance costs and taxes, the company's bottom line went through the roof, with a monumental 242 percent growth over the comparable period last year.
For JDW, the future bodes well. With its two newly added segments up and running, the company is now fully vertically integrated. Indigenously producing electricity and sugarcane will no doubt help the company to reduce its costs. Moreover, Ramadan season has also brought about higher demand, so the upcoming financials should be even more impressive.
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J.D.W Sugar Mills Limited
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Rs (Million) 6MFY15 6MFY14 YoY
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Net Sales 13,972 12,762 9%
Cost of Sales 11,610 11,285 3%
Gross Profit 2,361 1,477 60%
GP Margin 17% 12% up 500 bps
Administrative Expenses 386 269 43%
Selling Expenses 14 58 -76%
Other Income 155 43 260%
Other Operating Expenses 51 40 28%
Finance Cost 1,215 731 66%
Profit Before Taxation 850 423 101%
Taxation 292 89 228%
Profit After Tax 1,142 334 242%
NP Margin 8% 3% up 500 bps
Earnings per share 19.11 5.59 242%
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