Al-Abbas Sugar Mills Limited – BR Research

Al-Abbas Sugar Mills Limited (PSX: AABS) was established as a public limited company in 1991 under the Repealed Companies Order 1984 (now the Companies Act 2017). The Company has the following business segments: Sugar, Ethanol, Chemicals and Alloys, and Energy and Storage Terminal. Its manufacturing facilities are located in Mirpurkhas and Thatta.

Ownership model

As of September 30, 2021, more than 44% of the shares are held in associated companies, companies and related parties. Within it, a major shareholder is Haji Abdul Ghani. The directors, the CEO, their spouses and their minor children own more than 24% of the shares. In this category, Mr. Asim Ghani, the CEO of the company is a major shareholder holding more than 13% of the shares. 12.5% ​​of the shares are held by the local general public, followed by almost 12% by other companies. The remaining 8% of shares belong to the rest of the shareholder classes.

Historical operating performance

Al-Abbas Sugar Mills has had a fluctuating turnover over the years, however, the general trend is towards increasing revenues with a turnover of Rs 2.8 billion in the 2008 campaign, the highest turnover in the 2020 campaign at 8.15 billion rupees and 7.4 billion rupees in the 2021 campaign.

In fiscal 2018, the company experienced one of the highest revenue growth rates since fiscal 2011, at nearly 41%. Topline reached Rs 7.5 billion as the company produced 74,388 metric tons of sugar at the highest recovery rate of 11.17% compared to 70,484 metric tons in the MY17 campaign at a recovery rate of 10 .7%. The increase in revenue was driven by higher volumes, with the majority of revenue coming from export sales. Thus, the gross margin was also significantly higher at 27.56%. Although selling and other expenses were significantly higher year over year, this was offset by the increase in revenue. Thus, the net margin peaked at 17.27% and the highest result at 1.3 billion rupees.

During MY19, revenue contracted by more than 4%. The company produced and sold lower volumes of sugar. Sugar production was 50,892 metric tons with a recovery rate of 10.88%. The latter was attributed to the scarcity of water while the drop in volumes was due to the shortage of sugar cane. Unlike last year, the majority of revenue came from local sales in the sugar segment, while export sales amounted to Rs 275 million as prices in the domestic market were more lucrative. With the loss of revenue, the gross margin was reduced to 24.6% for the year, which also impacted the bottom line with a net margin of 15.5%.

MY20 revenue grew by almost 14% to a record high of Rs 8 billion. The sugar segment in particular saw an increase in revenue of more than 20% despite the drop in sugar production to 42,959 metric tons. However, the decline in sales volumes was not as pronounced at a marginal rate of 3%. The increase in income was attributed to an increase in the selling price which, in turn, resulted from a decline in sugar production in general. Sugar production in Sindh was 15.13% lower. The rise in revenue drove the gross margin to a peak of 25.8%. However, the net margin was slightly lower at 15.26% due to the loss suffered by the reportable segments of Rs 27 million, compared to the different levels of profits made in the six consecutive years.

Company revenue was down 9.5% during the MY21 campaign, while revenue from the sugar segment in particular was down more than 21%. Segment revenue only included local sales. While sugar production was 38,440 metric tons, sugar sales volumes were reduced by 38%. The loss of revenue was reflected in the significantly lower gross margin of 16% which also impacted net income with net margin recorded at 10.2% for the year. During the year, demand for sugar had increased as companies began to gain momentum with a decrease in Covid-19 cases. But that was not matched by the production. Thus, the government imported 350,000 tons of sugar.

Quarterly results and future outlook

MY22’s first quarter revenue grew more than 51% year-on-year. Within this framework, the sugar division saw its sales more than double in value. However, due to a high cost of production as a share of overall revenue, at almost 86%, compared to 73.6% in 1QMY21, the profitability for the period was lower with a net margin of almost by 10%, compared to 20% at 1QMY22. The majority of the cost increase as a revenue share was associated with the ethanol division.

The government of Sindh has set the minimum price for sugarcane at Rs 250 per 40 kg for the 2021-22 milling season from Rs 202 per 40 kg in 2020-21. However, the company had to pay up to 338 rupees per 40 kg due to the ensuing price war between mills and producers.

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Rachel J. Bradford