Pakistan’s Listed Sugar Sector’s Earnings Hit Record High of Rs. 22 Billion in FY23

Pakistan’s listed sugar sector’s earnings were up 78 percent year-on-year (YoY) to a record high of Rs. 22 billion in FY23 (Oct 2022 to Sep 2023), according to a report by Topline Securities. This increase is attributed to a rise in sugar prices that led to higher gross margins. Ethanol, which is a by-product of sugar, also experienced improved performance in FY23 due to favorable Ethanol selling prices in the international market along with the devaluation of the Rupee against the US dollar. Net sales of the sector jumped 29 percent YoY to Rs. 304 billion in FY23 due to the export of 249k tons and a 28 percent increase in average domestic prices in FY23. To recall, in Jan 2023, the Federal Government allowed the export of 250k tons of sugar, subject to the condition that proceeds in dollars would be recovered from sugar exporters within 60 days from when the letters of credit (LCs) are opened. As a result of this decision, the sector exported 249k tons in FY23 as per the Pakistan Bureau of Statistics (PBS). Opening up of exports has built pressure on domestic prices, leading to a 90 percent increase in prices from Rs. 88 per kg in Oct 2022 to Rs. 166 per kg in Sep 2023. However, local prices have now declined and are currently at Rs. 147 per kg as per PBS. International sugar prices have also increased 45 percent from $18.30 cts/Ib in Oct 2022 to $26.60 cts/Ib in Sep 2023. However international prices have now declined and are currently at $21.40 cts/Ib. Average gross margins of the sector clocked in at 18 percent in FY23 vs 15 percent in FY22. The improvement in gross margins can be attributed to improved retention prices. Selling and distribution expenses jumped by 38 percent which is in line with the increase in volumetric sales along with the inflationary environment. Finance cost has been limiting the earning growth of the sugar sector, as it jumped by 60 percent YoY to Rs. 18 billion in FY23 compared to Rs. 11 billion in FY22. The significant rise is due to higher interest rates and higher borrowing for working capital. Shahmurad Sugar Mills remained the best performer with profits of Rs. 3,828 million (18 percent of total sector profit) followed by Al-Abbas Sugar Mills with a profit of Rs. 3,686 million (17 percent of total sector profit) and Habib Sugar Mills with a profit of Rs. 2,541 million (12 percent of total sector profit) in FY23. Interestingly, few companies recorded higher net profit margins compared to peer companies mainly due to better performance by the Ethanol segment. This was driven by better Ethanol selling prices in the international market and the devaluation of the Pak Rupee against the Dollar. Topline said that for its analysis it has taken 20 listed sugar companies that have announced their financial results out of 23 companies. Abdullah Shah Ghazi Sugar, Chashma Sugar Mills, and Premier Sugar Mills have not yet announced their results and Topline estimates that adding these 3 companies would not materially impact the profitability growth trend. Moreover, Topline said it has excluded 5 companies on the defaulter category namely Ansari Sugar Mills, Dewan Sugar Mills, Haseeb Waqas Sugar Mills, Sakrand Sugar Mills, and Shakaranj Limited.