Mehran Sugar Mills Limited ('Mehran Sugar' or 'the Company') is a public limited company incorporated in December, 1965. The Company is listed on Pakistan Stock Exchange.

The company started its operations in 1968 with a cane crushing capacity of 1,500 TCD. Over the years, the company has increased its capacity to 12,500 TCD through BMR projects. The company also has a joint venture ethanol plant with United Ethanol Industries, which produces food and industrial grade ethanol. The company has also invested in a joint venture power plant with Mehran Energy, which generates electricity from bagasse. The company has also diversified into the FMCG and energy sectors through its joint ventures UniFoods Industries and Mehran Energy respectively.

The Company is a leading producer of sugar and its by-products. The mill is situated in District Tando Allahyar. Over the years, the Company managed to increase its crushing capacity to 12,500 TCD through capacity enhancement initiatives. Mehran Sugar entered in strategic partnership with other sugar companies in 2004 to establish a jointly operated distillery under the banner ‘Unicol Limited’ which has ethanol production capacity of 200,000 liters/day. In terms of production performance, Mehran recorded sugar production of 38,497 MT during the fiscal year MY24. This marks an decrease of ~55% compared to the 85,796 MT produced in MY23, demonstrating a steady improvement in operational efficiency and output. The mill’s capacity utilization remained at ~71% during MY24. Additionally, the sugar recovery rate, which measures the amount of sugar extracted from the sugar cane, increased by ~1.2%, from ~10.6% in MY23 to ~10.79% in MY24. This improvement in recovery rate can largely be attributed to favorable moisture content in the sugar cane crop, which enhances the efficiency of the extraction process and leads to a higher yield of sugar from the raw material.

Majority shareholding rests with individuals of Hasham Family (~75%) (‘Hasham Group’). Shareholding is divided among families of three brothers, Mr. M. Kasim Hasham (~16%) and Mr. Khurram Kasim (~11%), Mr. M. Ebrahim Hasham (~14%) and Mr. Ahmed Ebrahim Hasham (11%), and Mr. M. Hussain Hasham (15%). The remaining shareholding belongs to general public and other corporations.

Company's controlling interests vests with one group and each family within the group holds a defined share. The ownership of the Company is seen as stable.

The company has a high business acumen, as the Hasham family has demonstrated its ability to identify and capitalize on the opportunities and challenges in the sugar industry and other sectors. The family has invested in BMR projects to enhance the production capacity and quality of the company, and has diversified its business portfolio to reduce its reliance on the sugar industry. The family has also established long-term relationships with its customers, suppliers, and financiers, and has maintained a good reputation and brand recognition in the market.

As at MY24, the Company had a consolidated asset base of PKR 7.8bln and consolidated equity base of PKR 2.7bln.

The Board of Directors comprises of seven individuals, which include two executive directors, three non-executive directors, and two independent Directors. The board has a balanced mix of skills, experience, and diversity, and oversees the strategic direction and performance of the company.

Sponsoring family has a strong presence on the Board. However, members have significant experience in the sugar industry which is balanced by an adequate mix of business, finance, and legal experts. The board is chaired by Mr. Muhammad Kasim Hasham and has over 36 years of experience in the sugar industry.

In order to maintain effective oversight, the Board of Directors have formed two committees, namely, the Audit Committee and the Human Resource and Remuneration Committee. During MY24, four meetings of the Audit Committee and two meetings of the Human Resources and Remuneration Committee were conducted. Board election was also held during the aforementioned year.

The external auditors of the Company, M/s Grant Thornton Anjum Rehman is a QCR rated firm and in SBP’s panel of auditors with “A ‘category. Unqualified opinion was issued on Sep 24 financial statements.

The Company is headed by the Chief Executive Officer. The Company’s Chief Financial Officer, Resident Director, and Director Cane report directly to the CEO. Internal Audit, HR & IT are headed by separate managers and they report functionally to CEO and CFO. However, the head of Internal Audit and HR functionally reports to the Board Audit Committee and Board HR & Remuneration Committee and the Company Secretary functionally reports to the Board's Chairman.

Management has long association with Mehran Sugar adding the required experience in sugar industry and their respective fields. Mr. Ahmed Ebrahim Hasham acts as the CEO of the Company and has 24 years of practical experience in various sectors and is also chairman of Sindh for Pakistan Sugar Mill Association. Mr. Muhammad Hanif Aziz -FCMA serves as a Chief Financial Officer. He joined the Company in 2004 and has an overall 40 years of practical experience with multinational and national companies.

The Company has instituted an Executive Committee comprising all heads of departments. The Committee is headed by the CEO and meets on a monthly basis to review performance and enable short-term decision making.

Mehran Sugar has deployed an in-house system which has a sugar cane management module, store management module and human resources module. These are all integrated with the accounting system which is also developed in-house.

The company has outsourced its internal audit function to BPO Resources at Work, ensuring an independent and objective evaluation of its internal controls, risk management, and compliance processes. This outsourcing enhances efficiency, provides specialized expertise, and strengthens the overall governance framework.

Pakistan’s sugar industry stands as the second-largest agro-based sector in the country, comprising approximately90 mills with an annual crushing capacity of 80-90 million MT. Despite its scale, the industry faces persistentchallenges, particularly due to the Government-regulated sugarcane support prices, which are set based onfarmer’s costs and often constrain millers' profitability. In MY23, sugar production declined by approximately 15%,reaching 6.7million MT, primarily due to the devastating floods that damaged standing crops and reduced therecovery 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 toaround 7 million MT. The Government’s continued support for exports is expected to provide a much-needed boostto millers, helping them navigate challenging industry dynamics and mitigate financial pressures.

The Company contributed approximately ~0.56% to the total sugar production in the country as of MY24.

The primary source of the Company's revenue is derived from the sale of refined sugar. A geographical split of revenue indicates that ~98% is generated from the local market, while the remaining ~2% originates from exports. During MY24, the Company's topline slightly increased by ~0.04%, reporting to PKR 10,989 million compared to PKR 10,984 million in the corresponding period of the previous year MY23. This impact was driven by an increase in the sale price per kg, which rose from PKR 91/kg in MY23 to PKR 112/kg in MY24. Looking ahead, revenue stability is anticipated, underpinned by resilient local market demand for sugar. Additionally, the Company's financial performance improved due to sugar exports, amounting to PKR 200mln, which contributed positively to its results.

The Company's profitability margins reflect a deteriorated performance during MY24. The gross profit margin fell sharply to ~8.1% (MY24: ~21.5%). This steep decline was primarily driven by a substantial increase in the procurement cost of sugarcane, which had a direct negative impact on the cost of production. Higher sugarcane costs reduced the overall margin from the core business operations, making it more difficult to sustain profitability at the same levels as in the previous year. This translated into a shrinking Operating profit margin (~3.7%, down from ~17.9%). Moreover, during MY24, the net profit margin contracted to -7.3% from ~13.1%. This decline is primarily attributed to the net loss during the year. Additionally, the decline resulted from a substantial increase in finance costs, which rose to ~97%, reflecting the impact of elevated borrowing costs in a high-interest-rate environment.

The company operates in a volatile sugar industry with multiple external risks and uncertainties. The company achieved remarkable growth in MY23, leveraging its competitive position and favourable market conditions. The company faces potential challenges in MY24, requiring proactive risk management and strategic adaptation.

The Company’s working capital management has shown signs of operational inefficiencies during MY24. Inventories witnessed a deterioration, averaging 53 days compared to 36 days in MY23, driven by high levels of finished goods. Trade receivables remain at 13 days on average, underscoring the Company’s efficient receivables collection practices. However, trade payables averaged 4 days, from 4 days in MY23, indicating improved utilization of supplier credit. Resultantly, the Gross Working Capital cycle lengthened to 66 days (MY23: 42 days), resulting in a Net Working Capital cycle of 62 days compared to 38 days in the previous period. Leverage indicators present a stable picture, with Short-Term Total Leverage remaining neutral at 9.5% (MY23: 42.5%) and Short-Term Trade Leverage recorded at 10.6% from 47.3%, reflecting dependency on short-term trade credit. Going forward, the working capital cycle is expected to improve due to the efficient selling of stock through export.

The Company's coverage indicators reflect a mixed performance during MY24, highlighting challenges in its financial risk profile. The EBITDA-to-Finance Cost ratio has declined to 0.6x (MY23: 3.5x), signaling a reduced capacity to cover finance costs through operational earnings. Similarly, the FCFO-to-Finance Cost ratio has weakened to 0.4x from 3.1x, indicating tighter cash flow coverage of financial obligations. Debt repayment timelines have deteriorated (-0.8x from 0.4x) due to weaker cash flow generation, highlighting the need for improved financial efficiency. Going forward, coverages are expected to ease, resulting in lower finance costs.

Mehran sugar maintains a high-leveraged capital structure, which is on higher side in comparison to other industry players, with a debt-to-equity ratio standing at ~53.8% in MY24 (MY23: ~12.8%). The Company's debt consists of short-term borrowings, constituting ~82%, and long-term borrowing, constituting ~18% of the total debt. In MY24, the total debt of the Company stood at PKR 3,235mln due to increased utilization for running finance for working capital purposes and repayment of loan. The equity base of the Company stood at ~PKR 2,781mln (MY23: ~PKR 3,879mln).