Tandlianwala Sugar Mills Limited (TSML or ‘the Company’) is a publicly listed entity, incorporated in November 1998. Recognized as a prominent player in Pakistan’s sugar, ethanol, and carbon dioxide sectors, TSML has consistently demonstrated industry leadership. Having commenced production of its first refined sugar in 1992, the Company has since pursued a strategy of continuous expansion, solidifying its position as a key contributor to the country’s agro-industrial landscape.

Tandlianwala Sugar Mills Limited (TSML) commenced its journey in 1992 with the production of its first refined sugar, setting the foundation for a series of strategic expansions. The Company established its first sugar mill in Faisalabad, with an initial crushing capacity of 12,500 TCD, followed by a second mill in Dera Ismail Khan (DIK) and a third in Muzaffargarh, each with a crushing capacity of 16,000 TCD. Further diversifying its operations, TSML inaugurated its first distillery in Faisalabad in 2008, with a daily production capacity of 125,000 liters, and a second distillery in Muzaffargarh in 2013, boasting a capacity of 140,000 liters per day. Additionally, Unit 1 is equipped with a CO2 plant, underscoring the Company’s commitment to integrated, multi-faceted growth within the sector.

Tandlianwala Sugar Mills Limited (TSML) operates from its corporate headquarters in Lahore, with key production facilities located in Faisalabad, Dera Ismail Khan, and Muzaffargarh. The Company boasts a total crushing capacity of 48,500 TCD, supported by distilleries capable of producing a combined total of 265,000 liters of ethanol daily. In the most recent marketing year (MY24), TSML experienced a modest decline in sugar production, with output reaching 332,388 M.T, down from 333,663 M.T in MY23, yielding a recovery rate of 9.12%. Furthermore, TSML’s operational capabilities are enhanced by a fleet of six storage tanks, which collectively offer a monthly storage capacity of 15,600 MT, facilitating the secure storage of ethanol and petroleum products.

The majority ownership of Tandlianwala Sugar Mills Limited (TSML) is held by the Akhtar Group and its associated family members, including the Directors, CEO, their spouses, and minor children, who collectively control approximately 84% of the Company’s shares. Banks and financial institutions hold a marginal stake of around 0.16%, while the local public owns approximately 16%. Additionally, 5% of the Company’s shares are classified as free float, contributing to the liquidity and market presence of TSML.

Tandlianwala Sugar Mills Limited (TSML) enjoys a strong and stable ownership structure, with the Akhtar family holding the majority of controlling interests. This consolidated control ensures continuity in governance and strategic decision-making, fostering a stable operational environment. The Company’s ownership is viewed as resilient, with the Akhtar family’s long-term commitment serving as a key pillar of its ongoing stability and growth.

The Akhtar family, as the sponsors of Tandlianwala Sugar Mills Limited (TSML), brings a wealth of experience and a proven track record of success across a diverse portfolio of large-scale manufacturing enterprises in Pakistan. Akbar Akhtar Khan, with over two decades of leadership excellence, has played a pivotal role in steering TSML to its current stature. In addition to his leadership at TSML, he serves as the Managing Director of Superior Textile Mills Ltd., further underscoring his extensive expertise in managing and growing industrial operations at a strategic level.

As of 9MMY24, Tandlianwala Sugar Mills Limited (TSML) demonstrates strong financial resilience, with a substantial asset base of approximately PKR 46.6 billion and a robust equity base of around PKR 13.6 billion. This solid financial position not only underscores the Company's stability but also highlights its capacity for future expansion and strategic investments. The significant equity base provides a cushion against market fluctuations, while the sizeable asset base reflects the value of TSML’s operational infrastructure and long-term growth potential. This financial strength positions the Company well to navigate industry challenges and capitalize on emerging opportunities.

The Company’s Board of Directors (BoD) consists of two Executive Directors and five Non-Executive Directors. The current composition highlights a need for enhanced independent oversight and greater diversity to strengthen the governance framework. The Board is chaired by a Non-Executive Director and is predominantly influenced by the Akhtar Family, with six Nominee Directors.

The Board of Directors of Tandlianwala Sugar Mills Limited (TSML) is predominantly composed of members from the sponsoring Akhtar family, ensuring a strong familial presence in governance. However, the Board’s expertise is complemented by a well-balanced mix of professionals with significant experience in the sugar industry, along with experts in business, finance, and legal matters. Mr. Ghazi Akhtar Khan, the Chairman of the Board, brings invaluable experience in both the sugar and banking sectors. In addition to his leadership at TSML, Mr. Khan serves as President of Lotte Akhtar Beverages (LTAB). His extensive background includes a senior management role in the International Banking Division of Toronto Dominion Bank (now TD Bank) and a managerial position at Peat, Marwick, Mitchell & Co. (now KPMG) in Toronto, Canada. Mr. Khan is a Member of the Canadian Institute of Chartered Accountants and holds a Bachelor of Commerce (Honors) degree from the University of Toronto, Canada. His diverse expertise and global experience significantly enhance the Board’s strategic oversight and decision-making capabilities.

The Board of Directors (BoD) of Tandlianwala Sugar Mills Limited (TSML) is supported by four key committees: the Audit Committee, the HR & Remuneration Committee, the Risk Management Committee, and the Nomination Committee. Mr. Humayun Akhtar, a Non-Executive Director, effectively chairs both the Audit and HR & Remuneration Committees, bringing valuable oversight to these critical areas. The responsibilities related to the Risk Management and Nomination Committees are handled directly at the Board level, ensuring a strategic and comprehensive approach to governance. The minutes of all committee meetings are meticulously maintained, ensuring transparency and a thorough record of discussions and decisions for future reference. This structured committee framework reinforces the Board’s effectiveness in monitoring, guiding, and steering the Company towards its long-term objectives.

Tandlianwala Sugar Mills Limited (TSML) upholds a high standard of financial transparency through the appointment of UHY Hassan Naeem & Co. Chartered Accountants as its external auditors. The firm holds a satisfactory Quality Control Review (QCR) rating, and is on SBP's A category list, reflecting its credibility and professional competence. For the financial year ending September 2023, UHY Hassan Naeem & Co. issued an unqualified opinion on the Company’s financial statements, further reinforcing the accuracy, reliability, and integrity of TSML’s financial reporting.

Tandlianwala Sugar Mills Limited (TSML) operates with a well-defined organizational structure, where each department is led by a department head who reports directly to the CEO. The six key departments within the Company are Banking & Finance, Operations, Control & Maintenance (OC&M), New Projects, Sales & Trading (S&T), IT Accounts & Tax, and Export & Audit. All functional heads provide direct reports to the CEO, who is responsible for making strategic decisions. This streamlined structure, while effective in ensuring operational efficiency, also underscores the potential key-man risk, as the CEO plays a central role in the Company's decision-making and overall management.

Mr. Akbar Khan, the CEO of Tandlianwala Sugar Mills Limited (TSML), has been with the Company for over 3 decades. He holds a Bachelor of Science in Business with a focus on Accounting and Finance from Wright State University, USA, as well as a Master’s in Business Administration from Ball State University, USA. Before returning to Pakistan, Mr. Khan served as the Chief Auditor at a respected accounting firm in the United States for five years. His extensive experience and leadership have been integral to TSML’s growth and success. The management team at TSML boasts long tenures within the Company, bringing a wealth of experience in both the sugar industry and their respective fields. Mr. Ahmad Jehanzeb Khan, the Chief Financial Officer (CFO), has been with the Company for 32 years, further strengthening the leadership team’s deep-rooted expertise in the industry and financial management. This continuity and seasoned leadership underscore the team’s capability to navigate the complexities of the business and drive TSML’s strategic objectives.

This long-standing association fosters a deep understanding of the Company’s operations and the sugar industry, allowing for well-informed decision-making and a consistent approach to driving growth and profitability. The synergy between the leadership and their collective experience in the sugar industry, finance, and operations is a testament to the team’s capability to navigate challenges and capitalize on emerging opportunities, ensuring the continued success of TSML.

TSML leverages an in-house developed business management software suite to streamline and optimize day-to-day operations. The bespoke ERP applications cover critical functions such as Finance, Procurement, Human Resources, Production, Sales, Laboratory Analysis, and Automation, ensuring comprehensive oversight and integration across all departments. The system is continuously updated to meet evolving business needs, with enhancements and maintenance managed by a dedicated Development Team. This proactive approach to MIS enables TSML to maintain operational efficiency, improve decision-making through accurate data insights, and adapt swiftly to industry demands.

Tandlianwala Sugar Mills Limited (TSML) maintains a strong control environment to ensure operational efficiency and compliance with established policies and procedures. The Company has instituted a dedicated internal audit function tasked with implementing, monitoring, and evaluating its control framework. The internal audit department conducts quarterly evaluations to assess the effectiveness of processes and adherence to regulatory and organizational standards. Its findings and recommendations are directly reported to the Audit Committee, reinforcing a culture of accountability and continuous improvement. This proactive approach to internal controls underscores TSML's commitment to governance and operational excellence.

Pakistan’s sugar industry stands as the second-largest agro-based sector in the country, comprising approximately 90 mills with an annual crushing capacity of 80-90 million MT. Despite its scale, the industry faces persistent challenges, particularly due to the Government-regulated sugarcane support prices, which are set based on farmers’ costs and often constrain millers' profitability. In MY23, sugar production declined by approximately 15%, reaching 6.7 million MT, primarily due to the devastating floods that damaged standing crops and reduced the recovery rate. To manage the surplus inventory, the Government permitted the export of 0.5 million MT of sugar, offering some relief to the industry. The current MY24 season also reflects the lingering effects of flash floods, with a 4.7% loss in cultivated area. Despite these setbacks, sugar production is estimated to recover slightly to around 7 million MT. The Government’s continued support for exports is expected to provide a much-needed boost to millers, helping them navigate challenging industry dynamics and mitigate financial pressures.

Owing to numerous industry players, companies relatively have good market share. Tandlianwala Sugar Mill contributes ~ 5% to the total sugar production of Pakistan

The Company derives its revenue from a diversified portfolio of products, primarily sugar (~70%), ethanol (~29%), and Top Gas (~1%). A geographical split of revenue indicates that approximately 70% is generated from the local market, while the remaining 30% originates from exports. During the first nine months of MY24 (9MMY24), the Company's topline contracted by 8.6%, declining to PKR 32 billion compared to PKR 35 billion in the corresponding period of the previous year (9MMY23). This decline is primarily attributable to a volumetric reduction in ethanol exports. Conversely, sugar sales exhibited a 5% increase year-on-year, mitigating the impact of ethanol's lower export volumes. Furthermore, favorable price dynamics for both sugar and ethanol provided support to overall revenue generation, partially offsetting the decline in volumes. Looking ahead, revenue stability is anticipated, underpinned by resilient local market demand for sugar and ethanol and the potential for improved export conditions. The Company's ability to sustain pricing power and optimize its product mix across domestic and international markets will be critical in maintaining its topline trajectory amidst evolving industry dynamics.

The Company's profitability margins reflect a mixed performance during 9MMY24, with an improvement in operational efficiencies but persistent pressures on the bottom line. Gross Profit Margin rose to 16% (9MMY23: 13%), driven by improved pricing dynamics in sugar and ethanol. This translated into enhanced Operating Profit Margin (13%, up from 10%) and PBIT Margin (13%, up from 10%), underscoring the Company’s ability to manage production costs effectively while benefiting from favorable market conditions. However, Net Profit Margin contracted to 3% from 4% in 9MMY23. This decline is primarily attributed to a substantial increase in finance costs, which rose to 8% of sales (9MMY23: 5%), reflecting the impact of elevated borrowing costs in a high-interest-rate environment. Additionally, the Effective Tax Rate increased to 27% (9MMY23: 25%), further weighing on net profitability. The Company demonstrated improved operational cash generation, as evidenced by a Cash Conversion Efficiency of 11% (9MMY23: 10%). However, when adjusted for working capital changes, the Cash Conversion Efficiency turned negative (-25%), highlighting the challenges posed by elevated working capital requirements during the period. Overall, the improved operational margins and steady EBITDA generation provide a sound foundation for the Company’s creditworthiness.

The Company’s future performance will primarily hinge on the sugar division and the evolving dynamics of the sugar industry. This segment remains a key revenue driver, and its stability will be critical to the Company’s overall financial health. Meanwhile, the ethanol division is expected to maintain its steady performance, supported by consistent demand and pricing trends.High prices in the international market and opportunities for sugar exports are anticipated to support the Company’s topline growth. However, achieving sustainable profitability will require a strategic focus on reducing the leverage structure. Lowering debt levels will not only alleviate the burden of finance costs but also enhance net margins, further strengthening the Company’s financial resilience

The Company’s working capital management has shown signs of increased operational inefficiencies during 9MMY24. Inventories witnessed a sharp rise, averaging 111 days compared to 75 days in 9MMY23, driven by higher levels of both raw materials (32 days vs. 21 days) and finished goods (79 days vs. 54 days). This increase reflects extended stockholding periods, which could tie up liquidity and strain cash flows if not managed effectively. Trade receivables remain negligible at less than a day on average, underscoring the Company’s efficient receivables collection practices. However, trade payables averaged 7 days, a notable increase from 2 days in 9MMY23, indicating improved utilization of supplier credit. Despite this, the Gross Working Capital cycle lengthened to 111 days (9MMY23: 75 days), resulting in a higher Net Working Capital cycle of 103 days compared to 73 days in the previous period. Leverage indicators present a stable picture, with Short-Term Total Leverage remaining neutral at 0% (9MMY23: -5%) and Short-Term Trade Leverage improving to -6% from -13%, reflecting reduced dependency on short-term trade credit. Additionally, the Current Ratio improved to 2.42x (9MMY23: 1.97x), indicating adequate coverage of short-term liabilities through current assets. While the Company’s liquidity position remains strong, as reflected in its current ratio, the elongation of the working capital cycle and higher inventory levels could weigh on operational efficiency and cash flow management. Tightening inventory controls and optimizing the working capital cycle will be critical in mitigating financial risks and sustaining the Company’s financial stability.

The Company's coverage indicators reflect a mixed performance during 9MMY24, highlighting challenges in its financial risk profile. The EBITDA-to-Finance Cost ratio has declined to 1.74x (9MMY23: 2.27x), signaling a reduced capacity to cover finance costs through operational earnings. Similarly, the FCFO-to-Finance Cost ratio has weakened to 1.26x from 1.87x, indicating tighter cash flow coverage of financial obligations.Over the past three years, operational cash flow growth has remained minimal, emphasizing the importance of consistent enhancements in cash flow generation to reinforce liquidity. The Company has maintained moderate coverage of its total financing obligations, though challenges persist in its ability to generate sufficient cash to address these commitments effectively. Debt repayment timelines have lengthened due to weaker cash flow generation, highlighting the need for improved financial efficiency. Additionally, liquidity pressures remain evident, reflecting the necessity for stronger cash flow management and better utilization of liquid resources to meet short-term financial obligations. While the current coverage levels are sufficient to meet immediate needs, sustained improvements in operational performance and cash flow stability are critical to mitigating financial risks and preserving the Company's credit standing.

The Company's capitalization structure reflects a moderately high reliance on debt financing, with total borrowings constituting 69% of the capital structure in 9MMY24, up from 65% in the previous period. This increase indicates a growing leverage position, which could heighten financial vulnerability if not managed prudently. Short-term borrowings account for a significant 82% of the total borrowings, rising from 70% in 9MMY23. This shift towards short-term funding increases refinancing risk and underscores the importance of diversifying the debt profile to ensure long-term financial stability. Interest or markup payable days have improved, decreasing to approximately 65 days from 94 days in the corresponding period, signaling better payment discipline. Additionally, the slight positive spread over KIBOR reflects relatively favorable borrowing terms, marking an improvement from the negative spread in 9MMY23.The Company's capitalization profile, while currently manageable, would benefit from strategic deleveraging and a shift toward a more balanced funding mix.