Corporate results season seems a bane for sugar mills

KARACHI: It seems this year’s corporate result announcement season will not be fortunate for the sugar mills as increased regulation and taxes on the commodity sales would further impact the books of already depressed mill owners.

Four sugar mills posted financial results for the nine-month period ended June 30, 2021 on Tuesday, which do not paint a promising picture given the post-pandemic recovery gaining pace and other sectors are making good progress.

Al Noor Group’s Shahmurad Sugar Mills posted a net profit of Rs100.96 million (EPS: 4.78) for the nine-month period ended June 30, 2021, down 83 per cent against the profit of Rs605.07 million (EPS: 28.65) in the corresponding period last year.

Habib Sugar Mills posted a net profit of Rs855.27 million (EPS: 5.7) for the nine months ended June 30, up 0.9 per cent, compared with the profit of Rs847.60 million (EPS: 5.65) in the corresponding period of the last year, during which a very stricter lockdown remained imposed across the country.

Jauharabad Sugar Mills; however, posted a 204 per cent growth in profits to Rs36.83 million; while Sindh Abadgar’s Sugar Mills posted a net loss of Rs123.76 million for the period under review. The sales revenues of three of the above sugar mills recorded decline, while Jauharabad Sugar Mills posted growth in sales.

The listed sugar industry posted a negative return of 11 per cent for the year ended June 30, 2021.

The government of Punjab has increased the sugarcane support price to Rs200/maund [FY2020: Rs190]. Lesser yield of sugarcane crop mainly due to limited cultivation, scarcity of water coupled with the consternation of sugar shortage within the country, had resulted in intense competition between the millers right from the start of the season.

This, ultimately, led to an aggregate sugarcane procurement price hike of approximately 45 per cent [FY2020: 15 per cent] over the support price.

Moreover, the Competition Commission of Pakistan (CCP) charged Pakistan Sugar Mills Association (PSMA) and 84 sugar mills of violating certain provisions of the Competition Act of 2010 by controlling domestic stocks/supplies through the determination of export quantities, creating zonal divisions in Punjab to coordinate on sales, stock positions and production quota to monitor and control quantity to be sold.

It was also found out that the PSMA’s platform in Punjab Zone was used to share sensitive commercial stock information having a direct bearing on the current and future prices of white refined sugar.

Further, certain mills were alleged to have used the PSMA’s platform to take a collective decision to divide among themselves the quantity of sugar to be supplied for the utility stores tenders.

The Pakistan Sugar Mills Association is of the view that the sugar production was stagnant, while the sucrose recovery was declining. It notes in its annual report that whenever the decline in the production was evident, interruption in sugarcane supplies was phenomenal by the farmers in an effort to increase the sugarcane prices and despite all stoppage, the industry is bound under the Sugar Factory Control Act to continue its crushing.

The Finance Act 2021 has included sugar in the third schedule of the income tax ordinance making sugar supplies taxable on retail price.

This impact of higher tax will ultimately be passed on to the consumers; thus, a rise in the sugar price is expected in the latter half of the financial year.

The sugar production for the current year is estimated to be sufficient to meet the historical demand. However, to mitigate the perception of sugar stock deficit, the government, through the Trading Corporation of Pakistan (TCP), has taken an initiative to import the commodity.

The government has also taken an initiative to check anticipated price hikes and has implemented various controls.

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