Rahim Yar Khan January 12 2022: JDW Sugar Mills Limited profitability increased by 3.5 times with only 8 percent support from higher revenue.
There has been 8% increase in the net turnover of the Company which is attributable to more sale of sugar stocks & favorable prices of sugar and molasses compared to last year. In view of better prices, the gross profit margin has also improved to 18% from 14%
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Farmers Are Not Willing To Sell Sugarcane At Less Than Rs 300 per Maund
Sugarcane crushed this time was higher by 5% as compared to last crushing season but corresponding increase in sugar production was not in line with that increase which was just 1.5% due to 38 bps reduction in the sucrose recovery. Recovery of molasses, however, has jumped up from 4.34% to 4.60% showing an increase of 26 bps. There has been declining trend in sucrose recovery since last two years. In year 2018-19 sucrose recovery was 11.29% which was dropped to 10.36% in 2019-20 and 9.98% in current year. Besides start of early crushing seasons, the 2nd main reason was the sugarcane variety 234 which was contributing superbly in getting better sucrose recovery was needed to be phased out due to pest attack.
The Company this year has earned Profit After Tax (PAT) amounting to Rs. 4,878 million as compared to PAT Rs. 1,399 million resultantly earnings per share of the Company have increased from Rs. 23.40 to Rs. 81.61 in the current year which is mainly attributable to reduction in the financial charges, better sugar & molasses prices, turnaround of the Corporate Farms and reversal of deferred tax liability for an amount of Rs. 1.36 billion due to income tax exemptions granted to the Co-Gen power projects & non utilization of carry forward tax credits. Consolidated PAT of JDW Group is Rs. 4.6 billion as compared to Rs. 1.6 billion last year. Previously for various reasons, the JDW Group’s consolidated profitability never depicted its actual potential considering the number of production units it has under its umbrella i.e., four sugar units, two bagasse-based co-generation projects of 26.35 MW each and one sugarcane corporate farms having an area of approximately 25,000 acres of leased and owned agricultural land contributing up to approx. 10% towards cane procurement of the group.
There has been 16% increase in the administrative expenses of the company over last year which was mainly due to annual increase in the salaries, wages and other benefits, higher legal & professional expense and depreciation. Selling expenses have decreased from Rs. 60 million to Rs. 38 million.
Other income has substantially increased from Rs. 673 million to Rs. 2,211 million mainly because of increase in net fair value of sugarcane crop and other adjustments such as reversal of impairment loss in investment in FPML due to enhanced net realizable value (NRV) on account of increase in steel prices.
Substantial increase in other expenses is a write off of Rs. 3.3 billion on account of receivables from CPPA-G for power supplied to national grid explained in detail in subsequent paragraphs.
Finance cost of the Company has significantly decreased by Rs. 1,299 million i.e., 37% over last year as a result of reduction in the markup rates, timely sale of sugar stocks and reduction in overall debt of the Company.
In view of the better performance, the financial covenants have also improved substantially. The company is fully compliant with all financial covenants agreed upon with the financial institutions from time to time and fulfilling (rather in few cases repaying earlier) it’s all financial obligations on time and enjoys cordial relationship with all the financial institutions it’s dealing with.
In connection to the energy payments of the Company’s two bagasse-based Co-Gen Power Projects of 26.35 MW each from Central Power Purchasing Agency (“CPPA-G”) and revision in tariff components, after negotiations with the Committee notified by the Government of Pakistan during August 2020 and In compliance to the MOU signed with CPPA-G in August, 2020, we executed “Master Agreement” and “EPA Amendment Agreement” on 12 February 2021 with CPPA-G. As agreed in Master Agreement, the outstanding amount as on 30 November 2020 which in our case was Rs. 2,042 million will be paid in two tranches i.e., 40% of the amount which we have received on 04 June 2021 and balance 60% was received on 29 November 2021. Each instalment consisted of 1/3rd cash payment, 1/3rd by issuance of Sukuk Bonds of 5 years’ tenor and 1/3rd by issuance of Pakistan Investment Bonds (PIBs) of 10 years’ period. Further, the Company has, in the larger National Interest, voluntarily agreed to provide certain concessions in tariff components and also surrendered 70% of the fixed energy payment for energy dispatched above the annual 45% plant factor effective from Commercial Operation Dates. Resultantly, an amount of Rs. 3,326 million against fixed energy receivables has been written off in the current year’s financial statements.
The income tax exemptions for Bagasse Based Co-Generation Power Projects which were part of the policy framework for Power Co-Generation 2013 (Bagasse / Biomass) have also been notified by the FBR through Finance Act, 2021 which have been discussed in detail in subsequent paragraphs.
The Fuel Cost Component of Bagasse Based CoGen Power Projects is still unaddressed and on recommendation of Committee for Negotiation with IPPs, Ministry of Energy (Power Division) has referred the case to National Electric Power Regulatory Authority (NEPRA) for rationalization of bagasse price on merit. We are taking up this matter with NEPRA and we hope that this critical issue will also be resolved shortly
The balance sheet size is also stable at Rs. 36 billion and accumulated reserves have increased from 15 times to 23 times of the paid-up capital of the Company.
