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Sugar sector sees 78% surge in profits in FY23 | The Express Tribune


Sugar millers have reported a record-breaking 78% increase in profits during the financial year 2022-23. The sugar sector, listed on the stock exchange, witnessed a significant surge in profitability for the fiscal year 2023 (FY23), spanning from October 2022 to September 2023. The sector’s net profit soared by 78% year-on-year (YoY), reaching a record high of Rs22 billion. This remarkable growth in earnings is primarily attributed to the surge in sugar prices, leading to higher gross margins.

Furthermore, the ethanol segment, a by-product of sugar, also exhibited improved performance in FY23. This improvement was driven by favourable ethanol selling prices in the international market and the devaluation of the rupee against the dollar.

Net sales of the sugar sector also experienced a significant increase, rising 29% YoY to Rs304 billion in FY23. This growth was propelled by the export of 249,000 tonnes of sugar and a 28% increase in average domestic prices during the year.

A noteworthy development in FY23 was the government’s decision in January 2023 to permit the export of 250,000 tonnes of sugar, with the condition that dollar proceeds would be recovered from sugar exporters within 60 days from the opening of the letters of credit (LCs). Consequently, the sector exported 249,000 tonnes in FY23, as reported by the Pakistan Bureau of Statistics (PBS). The opening up of exports put pressure on domestic prices, causing a significant increase from Rs88/kg in October 2022 to Rs166/kg in September 2023. However, these prices have since declined and are currently at Rs147/kg, according to PBS.

International sugar prices also followed a similar trend, increasing by 45% from $18.30 cents/lb in October 2022 to $26.60 cents/lb in September 2023. Like domestic prices, international prices have decreased and are currently at $21.40 cents/lb. According to a report issued by Topline Pakistan Research, the average gross margins for the sector improved in FY23, reaching 18% compared to 15% in FY22. This improvement is largely due to enhanced retention prices.

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The sector’s selling and distribution expenses also increased by 38%, in line with the rise in volumetric sales and the prevailing inflationary environment.

However, the finance cost has been a limiting factor for the earnings growth of the sugar sector. It rose by 60% YoY to Rs18 billion in FY23, up from Rs11 billion in FY22. This significant rise is primarily due to higher interest rates and increased borrowing for working capital. Shahmurad Sugar Mills emerged as the top performer, with profits of Rs3,828 million (18% of the total sector profit), followed by Al-Abbas Sugar Mills with Rs3,686 million (17% of total sector profit), and Habib Sugar Mills with Rs2,541 million (12% of total sector profit) in FY23.

Interestingly, some companies recorded higher net profit margins compared to their peers, mainly due to the better performance of their ethanol segments. This was driven by better ethanol selling prices in the international market and the devaluation of the rupee against the dollar.

The analysis included 20 listed sugar companies that announced their financial results, out of a total of 23 companies. Abdullah Shah Ghazi Sugar, Chashma Sugar Mills, and Premier Sugar Mills have not yet announced their results, but it’s estimated that adding these three companies would not materially impact the overall profitability growth trend. The analysis also excluded five companies categorised as defaulters: Ansari Sugar Mills, Dewan Sugar Mills, Haseeb Waqas Sugar Mills, Sakrand Sugar Mills, and Shakaranj Limited.

Published in The Express Tribune, January 12th, 2024.

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