Mirpurkhas Sugar Mill Limited (the Company) is a public listed Company and listed on Pakistan Stock Exchange.

The Company was incorporated on May 27, 1964 and started its operations in 1965 with a crushing capacity of 1,500 TCD. Over the years, through frequent BMR and capacity enhancements, crushing capacity has been enhanced to 12,500 TCD. The Company's mill is located at Umerkot Road, Mirpurkhas, Sindh. Meanwhile the head office is based in Karachi. The Company also commenced corporate farming in 2012.

The Company’s operations are divided into two segments, i.e. Sugar Segment, Paper and Board Segment. The sugar plant of the Company operated for 97 days during MY24 (MY23: 87 days). Total sugarcane crushed was 616,102MT during MY24 (MY23: 562,641MT). Whereas total sugar produced was 66,101MT during MY24 (MY23: 59,325MT). Following this, the recovery rate during MY24 stood at 10.73% (MY23: 10.55%). For Paper and Board division, the Company has the production capacity of 250MT paper per day. It was also told that the plant produced 31,968 tons of paper in 2023-24, compared to last year, which was 17,959 tons. The Company has also 33.33% ownership stake in  Unicol Limited,  a joint venture between Faran Sugar Mills Limited and Mehran Sugar Mills Limited. Unicol’s ownership is divided equally among the three stake holders.

Major shareholding lies with the Faruque Group through Faruque Pvt. Limited and its associated companies (49.28%), Sponsors of the Company (0.87%), Banks, DFIs, NBFIs and others (9.37%), Insurance Companies (1.79%), Modarabas (8.09%) and General Public (30.6%).

The Group's long-term vision is supported by a multi-generational management approach, with the third generation actively involved and the fourth generation being strategically introduced at various business and operational levels. This is further reinforced by a well-defined holding Company structure that fosters a shared understanding and clearly defined interests among the family sponsors, ensuring sustained and stable leadership.

The Company is a part of Ghulam Faruque Group and is one of its first ventures. The Group was founded by Mr. Ghulam Faruque in 1964 through the establishment of Faruque (Private) Limited, the Parent Company. Over the years, the Group has established a strong foothold in various industries across Pakistan. After the demise of Mr. Faruque, operations of group companies were taken over by his five sons, who gradually expanded the business to where it stands today. The Group, through its established entities, and various subsidiaries, holds a notable position in the industries of cement, sugar, packaging, ethanol, software solution, power, air conditioning and FMCG, among others.

The Company derives financial strength from Ghulam Faruque Group, which houses well-known entities, such as Cherat Cement Company Ltd., Cherat Packaging Ltd., Unicol Ltd., Unienergy Ltd. Faruque (Pvt.) Ltd., Greaves Pakistan (Pvt.) Ltd., Greaves Airconditioning (Pvt.) Ltd., Greaves Engineering Services (Pvt.) Ltd., Greaves CNG (PVT.) Ltd., and Zenosoft (Pvt.) Ltd. The Group's commitment to contingency planning ensures the Company has access to necessary financial support during times of financial challenge.

The Company’s Board of Directors comprises seven members, including the Chairman, three Non-Executive Directors including a female director, two Executive Directors and two Independent Directors, one of whom is a representative of NIT.

Members of the Company possess a diversified background. Mr. Arif Faruque is the chairman of board and also CEO of Faruque (Pvt.) Limited. He is on the Board of Directors of Cherat Packaging Ltd. and Cherat Cement Company Ltd. Besides the above, he is also a member of the Board of Governors of Lahore University of Management Sciences (LUMS).

The Board maintains effective oversight through Board Audit Committee and HR & Remuneration Committee. High frequency of Board of Directors & Committees' meetings bodes well for the Company.

Kreston Hyder Bhimji & Co. Chartered Accountants, has expressed an unqualified opinion on the financial reports for the Company for the year ending in Sept-24. The firm is classified under category ‘A’ by the SBP and holds a satisfactory QCR rating.

The Company functions through ten departments, encompassing finance, sales, marketing, procurement, and internal audit, among others. All department heads report to the COO, who concurrently serves as the CFO. However, the heads of Internal Audit and HR report administratively to the CEO and functionally to the Board Audit Committee and Board HR & Remuneration Committee, respectively

Management comprises experienced individuals. The CEO, Mr. Aslam Faruque has experience of above 4 decades. He also serves as the CEO of Unicol Ltd., a joint venture distillery project. He is ably supported by COO & CFO - Mr. Wasif Khalid, having an experience of above 2 decades.

The Board maintains effective oversight through Board Audit Committee and HR & Remuneration Committee. The frequent meetings of the Board of Directors and its Committees are indicative of a proactive approach, contributing positively to the Company's governance.

The Company implemented SAP in 2010 and upgraded to SAP HANA in 2024. Production, sales and financial reports are submitted to the senior management periodically.

In order to ensure operational efficiency, the Company has setup an effective internal audit function. The department conducts regular reviews to monitor effectiveness of operations while identifying potential areas of improvements.

Pakistan’s sugar industry stands as the second-largest Agro-based sector in the country, comprising approximately 91 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 MY24, sugar production was recorded at 6.76 million MT. Despite that sugarcane production declined by 6.25% in MY24, due to better weather conditions overall sugar production was slightly higher. Excess sugar production over consumption and opening carryover stock of sugar, to manage the surplus inventory, the Government permitted the export of 0.790 million MT of sugar, offering some relief to the industry industry to reduce the impact of these setbacks, sugar production is estimated to reduce by 10-15% due to non-availability of irrigation water across Pakistan , this will create a new equilibrium for sugar prices due to demand and supply position against the national consumption of sugar.

The Company held ~0.9% share in total sugar production of the country and holds a relatively low market share. Additionally, it is expanding its presence in the paper and board segment.

The Company's MY24 financial performance presents a pronounced dichotomy between revenue expansion and profitability. Despite a 54% topline surge to PKR 12 billion, driven predominantly by sugar sales constituting 67% of revenue, a substantial PKR 2 billion net loss was realized including loss of PKR 652 million shared by Unicol Limited, a stark contrast to the prior year's PKR 839 million profit. This financial deterioration is primarily attributable to a depressed sugar and paper sale prices coupled with significant escalation in sugarcane costs, OCC materials both import and local, impacting the cost of goods sold, and a concurrent surge in finance costs to PKR 1.8 billion due to higher discounting rates, indicative of heightened debt servicing obligations. Furthermore,  paper division incurred a loss at the Profit Before Interest and Taxes (PBIT) level due to elevated cost of sales, a consequence of its developmental stage, effectively offsetting any potential profitability from the core sugar segment and exacerbating the overall financial deficit. Consequently, despite a marginal 0.9% market share in national sugar production and substantial revenue growth, the Company's inability to translate these gains into profitability underscores fundamental operational vulnerabilities. Strategic imperatives necessitate effective management of escalating input costs, rigorous financial restructuring to address burgeoning finance costs, and targeted initiatives to enhance market share. Concurrently, a focused approach to optimizing the paper division's cost structure and operational efficiency is crucial to mitigate its negative impact and contribute to overall financial stabilization and long-term sustainability.

The Company's MY24 financial performance demonstrates a significant and concerning erosion of profitability across all key margin metrics. Gross profit margins plummeted from 17.5% to 6.8%, directly reflecting the substantial impact of rising sugarcane costs on the Company's core operational efficiency. While operating profit margins appear to have decreased from 11.9% in MY23 to 2.0% in MY24, this apparent improvement is deceptive, as it is largely negated by the substantial increase in finance costs and operating expenses, which are factored in below the operating profit line. Critically, net profit margins deteriorated dramatically, shifting from a positive 10.8% in MY23 to a significant negative 18.6% in MY24. This drastic reversal underscores the Company's vulnerability to escalating input costs, burgeoning finance costs, and increased operating expenses, demanding immediate and comprehensive strategic interventions to restore profitability and ensure long-term financial stability.

High sugar price in the local market and robust demand of ethanol in the export market during tends to bode well for the Company, going forward. However, the Company is exposed to volatility and ensuing challenges in the sugar sector. On the other hand, the Company has successfully started commercial operations of its paper division from May 12, 2023 with the installed capacity of 250 tons' paper per day. To reduce its paper business cost of goods manufactured, the company has announced in December 24 to install a biomass pulping project with cost of Rs. 500 million, with a completion time of 16 months.

The Company’s working capital management is largely a function of its inventory. An inherent stress is faced by the Company due to seasonality in the crushing cycle. The Company's working capital dynamics in MY24 present a mixed picture. While certain operational efficiencies were achieved, others experienced deterioration. Specifically, inventory management demonstrated improvement, with average inventory days reducing from 89 to 70 days, indicating enhanced inventory turnover and potentially more efficient production or sales processes. Conversely, trade receivable days lengthened from 18 to 32 days, suggesting a potential increase in credit terms extended to customers or challenges in collections, which could impact cash flow. Consequently, gross working capital days decreased marginally from 108 to 102 days, reflecting the combined effect of improved inventory days and worsened receivable days. Trade payable days remained relatively stable, increasing slightly from 9 to 10 days. Ultimately, net working capital days showed a modest improvement, decreasing from 99 to 92 days. However, the significant deterioration in trade receivable days warrants careful attention, as it could signal underlying issues with credit management and potentially strain the Company's liquidity. While overall working capital efficiency improved slightly, the lengthening receivable cycle requires strategic review and potential corrective action to ensure sustainable cash flow management.

The Company's financial risk profile deteriorated significantly in MY24, as evidenced by a substantial decline in key coverage ratios. Funds from Current Financial Operations (FCFO) decreased sharply to PKR 494 million from PKR 1,057 million in MY23, while finance costs surged to PKR 1.8 billion from PKR 1.1 billion. Consequently, the FCFO to finance cost coverage ratio plummeted to 0.3x from 0.9x, indicating a diminished capacity to service debt obligations. Furthermore, total coverage, reflecting the ability to cover all fixed charges, also deteriorated markedly to 0.1x from 0.3x. This drastic reduction in coverage ratios signals a heightened financial risk, reflecting the Company's reduced ability to meet its financial commitments due to declining operating cash flows and escalating finance costs, necessitating urgent financial restructuring to mitigate potential liquidity and solvency issues.

The Company's capital structure exhibits a heightened level of financial leverage, as evidenced by a substantial increase in the debt-to-equity ratio from 66% in MY23 to 78% in MY24. This notable escalation is primarily attributed to a significant expansion in the Company's borrowing activities, with total borrowings rising from PKR 7,754 million to PKR 8,923 million. This increased reliance on debt financing signifies a heightened financial risk profile, potentially exposing the Company to increased interest rate sensitivity and a greater vulnerability to financial distress in the event of adverse market conditions or operational challenges. The elevated leverage necessitates a strategic review of the Company's capital structure and a careful assessment of its ability to service the increased debt load, emphasizing the need for robust cash flow management and potential debt restructuring initiatives.