KARACHI, Feb 3: Sugar mills, almost across the board, are yielding bitter results during the current reporting season, which appeared imminent following an unending battle between cane-growers and millers and a hapless broker — the government.
Among the nine-odd sugar mills that unveiled financial figures for the quarter ended Dec 31, 2006 last Wednesday, as many as eight posted losses and the one which managed to remain in the black shed more than a fifth of the earnings that the company had made in comparable quarter last year.
The KSE annual report for the year 2006 shows 37 listed companies in the sector, with paid-up capital of Rs6.7 billion.
Most sugar mills shares are inactive and illiquid, which is why investor interest in sugar scrips is limited to just a few profit making, dividend paying mills that stand aside the loss-making units.
Due to their limited floating stock, analysts at stock brokerage houses only rarely follow a sugar company.
The mills that uncovered financial figures for the quarter ended Dec 31, 2006, on Wednesday included Husein Sugar Mills which was the lone one that posted profit of Rs2.4 million but way below the Rs11.8 million net earnings reported in the previous similar quarter. Khairpur Sugar Mills showed loss of Rs2.3 million, lower than last similar quarter loss at Rs5.3 million.
The remaining companies that showed losses included: Fecto Sugar Mills posting loss after tax (LAT) in the sum of Rs32.4 million, quite a U-turn from profit of Rs26.7 million earned in the same quarter of 2005.
Another company of the same group, Baba Farid Sugar Mills dipped into a loss of Rs32.4 million for the quarter under review, from profit of Rs36.7 million in the same time last year.
Mehran Sugar Mills showed net loss of Rs13.7 million, compared with net gains of Rs20.1 million in the similar quarter last year.
Noon Sugar Mills contributed deficit of Rs6.7 million, turning away from profit of Rs11.1 million in the same three months of 2005.
Sakrand Sugar Mills returned loss of Rs46.0 million, which was many times the Rs3.4 million of loss that it had suffered in the same time last year.
Deficit at Ansari Sugar Mills jumped from Rs3.2 million in 2005 to Rs32.8 million in the quarter under review and Adam Sugar Mills produced after-tax loss of Rs40 million, while in the same time last year, it had managed to eke out a profit of Rs7.7 million.
Invariably the companies have increased sales, but the benefit could not travel down to the bottom-line.
“The major culprit was the price of sugar cane”, says an industry CEO.
While investors at stock market are not much enthusiastic about the performance of sugar stocks, they can scarcely distance themselves from the use of commodity and it’s pricing.
The issues that bedevil the industry are endless. Most of them revolve around the price of sugar-cane that the growers should be paid by the millers.
Industrialists allege that cane growers were switching to other crops, creating shortage for millers.
There is also an ongoing conflict over the issue of sucrose content.
Ministry of Food, Agriculture and Livestock (Minfal) and the Pakistan Sugar Mills Association (PSMA) are now understood to have agreed to link sugarcane price with the sucrose recovery from the next crushing season.
Gur is believed to be replacing sugar as a sweetener among the rural poor.
Major portion of sugarcane this season went into gur-making. Illicit gur making activity is an old lingering problem in the NWFP, but it is has turned into a major commercial activity since 2005-06 as cottage industries grew in number and speeded up their production.
If the industry sources are to be believed, in NWFP cane growers were offered Rs85 per ton by the mills, against official rate of Rs67 per ton, but they preferred to hand over stocks to gur makers who were willing to pay even higher price.
“Gur-makers in the NWFP are selling their commodity at Rs50 per kg and do not have to pay a paisa in tax”, laments this sugar mill’s chief executive.
Last year Pakistan produced 2.6 million tonnes of sugar due to short cane crop. That resulted in insufficiency of the commodity and government had to allow duty-free imports.
Interestingly, many sugar companies then made lemonade of a lemon and went into import business making money by selling at the ruling high prices.
The production target for current financial year is 3.5 million tonnes. Investors in sugar companies are hardly interested in looking at the balance sheets.
Most small investors, who frequent the stock market, can nonetheless, scarcely escape the habit of pan and tea. When the stock market takes the inevitable dip — which the pundits say could come as early as next week — how would the speculators drown their sorrow in a cup of tea, unless sugar is available at the government-PSMA agreed price of Rs31 per kg?