Pakistan Sugar Sector Profit Up 78% in FY23

By Newztodays Team

After the banking sector, the sugar millers have made a record increase in their profit by 78% during the financial year 2022-23.

In an extraordinary leap, Pakistan’s sugar industry has tasted unprecedented success in fiscal year 2023, with a staggering 78% surge in net profits.

The sector, buzzing from a strategic export decision and rising global sugar prices, has made record billions.

The Pakistan-listed sugar sector recorded a significant increase in profitability for the fiscal year 2023 (FY23), which spans from October 2022 to September 2023.

The sector’s net profit surged by 78% year-on-year (YoY) to a record high of Rs 22 billion.

This impressive growth in earnings is primarily attributed to the rise in sugar prices, which resulted in higher gross margins. ECC allows import of sugar, wheat to build reserves

Additionally, the ethanol segment, a by-product of sugar, also showed improved performance in FY23.

This improvement was driven by favorable ethanol selling prices in the international market and the devaluation of the Pakistani Rupee against the US dollar.

Net sales of the sugar sector also saw a significant increase, jumping 29% YoY to Rs 304 billion in FY23.

This growth was fueled by the export of 249,000 tons of sugar and a 28% increase in the average domestic prices during the year.

A notable development in FY23 was the Federal Government’s decision in January 2023 to allow the export of 250,000 tons of sugar.

This decision was made 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 tons in FY23, as reported by the Pakistan Bureau of Statistics (PBS).

This opening up of exports led to pressure on domestic prices, causing a significant increase from Rs 88/kg in October 2022 to Rs 166/kg in September 2023.

However, these prices have since declined and are currently at Rs 147/kg, as per PBS.

According to the report, international sugar prices also experienced a similar trend, increasing by 45% from 18.30 cents/lb in October 2022 to 26.60 cents/lb in September 2023.

Like the domestic prices, international prices have also 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.

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 financial cost has been a limiting factor for the earnings growth of the sugar sector. It rose by 60% YoY to Rs 18 billion in FY23, up from Rs 11 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 Rs 3,828 million (18% of the total sector profit), followed by Al-Abbas Sugar Mills with Rs 3,686 million (17% of total sector profit), and Habib Sugar Mills with Rs 2,541 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 Pakistani 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 categorized as defaulters: Ansari Sugar Mills, Dewan Sugar Mills, Haseeb Waqas Sugar Mills, Sakrand Sugar Mills, and Shakaranj Limited.