By BR Research

Copyright brecorder

Mehran Sugar Mills Limited (PSX: MRNS) was incorporated in Pakistan as a public limited company in 1965. The principal activity of MRNS is the manufacturing and sale of sugar and its by-products.

Pattern of Shareholding

As of September 30, 2024, MRNS has a total of 74.928 million shares outstanding which are held by 1685 shareholders. Individuals have the major stake of 94.05 percent in the company out of which around 71.49 percent shares belong to Directors, CEO, their spouse and minor children while remaining 22.56 percent shares are held by general public. Joint stock companies hold 4.63 percent shares of the company while insurance companies account for 1.01 percent shares. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-24)

Except for a year-on-year decline recorded in 2021, MRNS’s topline followed an upward trajectory over the period under consideration. Its bottomline, on the other hand, shrank until 2021 where it posted net loss. This was followed by a staggering rebound in the bottomline in 2022 and 2023. In 2024, MRNS posted net loss yet again. The margins portrayed a mixed pattern during the five-year span. Gross and operating margins rose in 2019 and posted a drop in 2020. In 2021, while gross margin greatly improved, operating margin posted a slight downtick. In 2022 and 2023, both the margins bounced back followed by a drastic fall in 2024. Conversely, net margin posted a downfall until 2021 where it entered a negative territory. This was followed by a rebound in 2022 and 2023. In 2024, the net margin turned negative yet again. The detailed performance overview of the period under consideration is given below.

In 2019, MRNS net sales grew by 10.87 percent year-on-year to clock in at Rs.5311.77 million. 2019 proved to be a short year with lower cultivation and yields compared to the two previous years. This was because the area under cultivation significantly reduced when compared to other crops which had better returns. However, the ambiguity and production glut at the start of the year kept the prices under pressure. The government took the timely decision to allow the export of excess sugar which stabilized the prices to a great extent In 2019, MRNS crushed 702,259 M Tons of sugarcane which was 33 percent lesser than the crushing done in 2018. This resulted in a lower capacity utilization of 59.77 percent in 2019 versus capacity utilization of 64.77 percent recorded in 2018. This resulted in 80,332 M Tons sugar production and 33,182 M Tons Molasses production which was 33 percent and 36 percent lesser respectively compared to the production of 2018. A major part of the net sales in 2019 comprised of the revenue proceeds of selling the closing stock of sugar produced in 2018 where cost of production was lower. Hence, the gross profit improved by 39.11 percent year-on-year in 2019 with GP margin jumping up to 15.44 percent from 12.31 percent in 2018. Distribution expense dropped by 46.56 percent year-on-year in 2019 due to lower export expenses as the company supplied in the local market due to greater demand and better prices while international sugar prices were hovering at a 5-year low in 2019. Administrative expenses also plunged by 7.69 percent year-on-year in 2019. Other expense posted a year-on-year fall of 81.68 percent in 2019 due to no provision booked for impairment of investment at FV OCI as well as no farm expenses incurred during the year. Other income slid by 53.39 percent year-on-year in 2019 as no exchange gain was recognized in 2019. Operating profit grew by 89.34 percent year-on-year in 2019 with OP margin climbing up to 10.77 percent from 6.31 percent in 2018. Finance cost posted a steep rise of 81.15 percent year-on-year in 2019 on account of higher discount rate and higher borrowings to make upfront cane payment which increased the working capital requirements despite lower production in 2019. The payment of prior year taxation increased the tax expense for 2019 by 543.77 percent year-on-year. This pushed the net profit down by 2.20 percent year-on-year to clock in at Rs.403.83 million in 2019. This translated into NP margin of 7.60 percent in 2019 versus NP margin of 8.62 percent recorded in 2018. EPS also nosedived from Rs.10.19 in 2018 to Rs.8.67 in 2019.

In 2020, MRNS topline posted a year-on-year rise of 20.95 percent to clock in at Rs.6424.68 million. This was mainly on account of higher sugar prices while volume remained at almost intact at the last year level. This was another year of low cultivation and yield. In anticipation, the sugar mills started purchasing the crop on cash payment and better prices which greatly increased the returns to the farmers, making sugarcane a high return crop. This also increased the probability of greater area brought under sugarcane cultivation in the coming years. Sugar price also staggeringly grew during 2020 not only because of lower cultivation and higher prices of cane but also because of the increase in the sales tax from 8 percent to 17 percent. In 2020, MRNS crushed 654,339 M Tons of cane which was 6.8 percent lower than last year. This translated into an even lesser capacity utilization of 49.8 percent in 2020. The sugar production turned out to be 72,821 M Tons in 2020 while Molasses production stood at 29,550 M tons which was 9.35 percent and 10.95 percent lesser respectively when compared to the production volume of 2019. This was the lowest production ever done by the company in ten years. Cost of sales grew by 32.69 percent year-on-year in 2020 due to increase in overhead due to low capacity utilization. This trimmed down the gross profit by 43.30 percent year-on-year in 2020, culminating into GP margin of 7.24 percent in 2020. Distribution and administrative expense tumbled by 20.96 percent and 14.16 percent respectively. This was on account of lesser export expenses as well as stacking and loading charges as well as lower payroll expense. The company also reduced its human resource count from 339 in 2019 to 329 in 2020 due to thinner capacity utilization. Other expense also slumped by 51.96 percent year-on-year in 2020 as no provisioning was done for WWF and WPPF in 2020. Other income posted a robust 231 percent year-on-year growth in 2020 due to gain on disposal of equity instruments at fair value and unrealized gain on the measurement of equity instruments at fair value. Despite contained operating and other expenses and higher other income, operating profit shrank by 20.53 percent year-on-year in 2020 with OP margin sliding down to 7.1 percent. Finance cost dropped by 11 percent year-on-year in 2020 due to low discount rate in the 2HFY20 coupled with lower short-term borrowings. Net profit slid by 88 percent year-on-year to clock in at Rs.47.03 million in 2020 with NP margin clocking in at 0.73 percent. EPS profoundly dropped to Rs.0.96 in 2020.

In 2021, MRNS topline dropped by 5.62 percent year-on-year to clock in at Rs.6063.54 million. Initially, the forecast was of better yield, however, due to water scarcity and crop disease, the actual harvest was much lower than the nation’s need. This increased the sugarcane prices. The company crushed 682,253 M Tons of sugarcane in 2021 which was 4 percent higher than the previous year. This resulted in a slightly higher production of sugar and molasses to clock in at 73,092 M tons and 31,880 M Tons respectively. The drop in the topline was due to the fact that the company disposed off its stock at lower prices due to ongoing inquiries and inspections. Cost of sales also slid by 8.94 percent year-on-year in 2021 due to significantly lower repair and maintenance charges. Gross profit grew by 36.92 percent year-on-year in 2021 with GP margin rebounding to 10.50 percent. Distribution expense slipped by 3.97 percent year-on-year in 2021 on account of no export expenses as no export sales were made during the year. Administrative expense inched up by 19.71 percent year-on-year in 2021 due to higher depreciation of right-of-use assets, high legal and professional charges as well as elevated travel and conveyance charges. Payroll expense, however, shrank as the company reduced its number of employees to 324 in 2021. Other expense multiplied by a massive 2311.62 percent in 2021 due to hefty unrealized loss on re-measurement of equity instruments at fair value. Other income also dwindled by 10.59 percent year-on-year in 2021 as the company recorded no unrealized gain on the re-measurement of equity instruments at fair value. This nullified the impact of a sizeable dividend income as well as gain on the disposal of equity instruments at fair value earned in 2021. Operating profit plunged by 8.45 percent year-on-year in 2021 with OP margin slightly falling to 6.86 percent. Finance cost shrank by 22.72 percent year-on-year in 2021 due to lower discount rate. The company also booked allowance of Rs. 72.92 million for expected credit losses on long-term investments in 2021. MRNS posted net loss of Rs.23.82 million in 2021 with loss per share of Rs.0.40.

In 2022, MRNS topline grew by 13.76 percent year-on-year to clock in at Rs.6898.03 million. This year, sugarcane crop was much better than the last three years especially in the Punjab region, however, Sind region lagged behind due to greater returns on other crops coupled with water scarcity in the region. The minimum support price of sugarcane in Sindh was set at Rs.250/40 kg compared to Punjab where the minimum support price was set at Rs.225/40 kg. This put the mills in Sind including MRNS at a competitive disadvantage. MRNS crushed 856,944 M Tons of sugar in 2022 which was 25.6 percent higher than last year. Sugarcane production increased to 95,642 M Tons in 2022 while molasses production grew to 39,811, signifying an increase of 30.8 percent and 24.8 percent respectively. Despite high cane prices, the overall sugar production of industry stood at 7.9 million tons which was not only 38 percent higher than last year but also the highest ever production recorded by the local industry so far against the consumption forecast of 6.8 million tons. This created a surplus; however, PSMA couldn’t get permission for export which created glut in the domestic market. MRNS’s cost of sales grew by 12.23 percent year-on-year in 2022, resulting in GP margin of 11.70 percent. Distribution expense grew by 60.51 percent year-on-year in 2022 due to higher salaries of sales force as well as stacking and loading charges. Administrative expense posted a downtick of 2.55 percent year-on-year due to lower depreciation. Other expense and other income also contracted by 24 percent and 32.93 percent respectively due to realized and unrealized loss on equity instruments, lesser farm income, no scrap sales made during the year and lesser gain on the disposal of fixed assets and right of use assets in 2022. Operating profit rebounded by 26 percent after two years of decline. OP margin also increased to 7.60 percent in 2022. Finance cost grew by 98.95 percent year-on-year in 2022 due to higher discount rate and increased liquidity requirement. MRNS was able to record net profit of Rs.289.36 million in 2022 with NP margin 4.19 percent. EPS clocked in at Rs.5.34 in 2022.

In 2023, MRNS’s topline posted a staggering year-on-year growth of 59.23 percent to clock in at Rs.10,983.53 million. During the year, devastating floods compelled the farmers to do early harvesting which resulted in poor yield. Shortfall in sugarcane production resulted in a price war. Sind government increased the minimum support price of sugarcane from Rs. 250 per 40 kg in 2022 to Rs.302 per 40 kg in 2023. During the year, MRNS crushed 804,872 M tons of sugarcane, down 6 percent year-on-year. This resulted in 10.29 percent decline in sugar production and 4.88 percent decline in molasses production during the year (see the graph of production volumes). While the production was reduced, the carryover stock from the previous year coupled with an increase in the sugar, molasses and bagasse prices owing to shortage of cane crop contributed to the topline growth in 2023. Export sales worth Rs.406.23 million and sales worth Rs.1161 million to Unicol Limited, a related party, also greatly buttressed the topline in 2023. Cost of sales mounted by 41.52 percent in 2023. This culminated into 192.78 percent stronger gross profit in 2023 with GP margin clocking in at its optimum level of 21.52 percent. Distribution expense surged by 16 percent in 2023 owing to higher sales volume. Administrative expense also escalated by 21.27 percent in 2024 on account of higher payroll expense as the number of employees were increased from 258 in 2022 to 278 in 2023. Other expense dropped by 12.41 percent in 2023 due to high-base effect as the company recorded unrealized loss on the re-measurement of investments at FVTPL and loss on the disposal of investments at FVTPL in the previous year. Other expense was completely offset by 86.31 percent higher other income recorded in 2023. Stronger other income was the result of gain recorded on the disposal of investments at FVTPL and gain recorded on the disposal of non-current assets held for sale. MRNS posted 312.70 percent higher operating profit in 2023 with OP margin clocking in at 19.70 percent. Share of profit from associates posted a phenomenal growth of 107.16 percent to clock in at Rs.911.79 million in 2023. This included profit from Unicol Limited and UniEnergy Limited. Allowance for ECL surged by 260 percent in 2023. Finance cost also mounted by 20.71 percent due to higher discount rate. The company settled a considerable portion of external borrowings during the year which resulted in gearing ratio of 12 percent in 2023 versus gearing ratio of 45 percent recorded in 2022. Net profit strengthened by 398.67 percent in 2023 to clock in at Rs.1442.95 million with EPS of Rs.19.26 and NP margin of 13.14 percent.

After posting phenomenal financial performance in 2023, came 2024 where MRNS’s topline posted a paltry year-on-year growth of 0.05 percent to clock in at Rs.10,988.87 million. During the year, sugarcane production dropped by 0.4 percent due to 10.5 percent decline in area under cultivation as farmers moved to more profitable crops like rice, cotton and banana. Sugarcane yield per hectare greatly improved by 11.3 percent in 2024 due to favorable weather conditions.. This translated into 13.51 percent improvement in sugar production and 7.77 percent increase in molasses production in 2024. Minimum support price of Rs.425 per 40 kg was set by Sind government in 2024. During the year, MRNS crushed 902,931 M tons of sugarcane, up 12.18 percent year-on-year. This drove up the cost of sales by 17.10 percent in 2024 and culminated into 62.14 percent thinner gross profit. GP margin drastically dropped to 8.14 percent in 2024. Distribution expense multiplied by 58.22 percent in 2024 due to elevated freight charges. Administrative expense mounted by 14.47 percent in 2024 due to higher payroll expense on account of inflationary pressure while the number of employees stood intact at 278. Considerable decline in profit related provisioning resulted in 89.56 percent lower other expense in 2024. Other income grew by 185 percent in 2024 on account of unrealized gain on the re-measurement of investments at FVTPL and gain on disposal of investments at FVTPL. MRNS recorded 43.16 percent lower operating profit in 2024 with OP margin clocking in at 11.19 percent. Unlike all the years under consideration, MRNS recorded share of loss of Rs.652.28 million from its associates. This was due to loss recorded by Unicol Limited on account of high borrowing cost, unfavorable exchange rate movements and adverse ethanol and molasses market dynamics. MRNS’s finance cost spiraled by 97.24 percent in 2024 owing to higher discount rate and a massive hike in short-term borrowings. Gearing ratio jumped up to 53 percent in 2024. MRNS incurred net loss of Rs.799.026 million with loss per share of Rs.10.66 in 2024.

Recent Performance (9M2025 for the year ending September)

During the nine-month period of 2025, MRNS’s topline improved by 38.11 percent to clock in at Rs.10,734.92 million on account of higher sales volume of sugar which also included carry over stock from the previous period. During the period under consideration, the company’s cane crushing volume declined by 21.3 percent to clock in at 710,803 M tons. This translated into 25.4 percent drop in sugar production which was recorded at 72,643 M tons and 18.5 percent plunge in molasses production which was recorded at 33,247 M tons in 9M2025. While area under sugarcane cultivation greatly increased during the period, severe heat waves considerably squeezed the per acre yield. Cost of sales surged by 41.54 percent during the period on account of inflationary pressure and lower absorption of fixed cost due to reduced capacity utilization. No support price was announced during the period resulting in market driven pricing mechanism. Gross profit grew by 19.85 percent in 9M2025; however GP margin dropped to 13.71 percent versus GP margin of 15.80 percent recorded during the same period last year. Distribution expense escalated by 83.71 percent while administrative expense surged by 17.30 percent during the period under review due to higher sales volume and inflationary pressure. Higher profit related provisioning appears to be the cause of 575.85 percent surged in other expense in 9M2025. Other expense was counterbalanced by 25.18 percent higher other income recorded during the period which was the result of prudent investment decisions. Operating profit picked up by 14.51 percent in 9M2025, however OP margin dipped to 17.82 percent versus OP margin of 21.49 percent recorded in 9M2024. Unlike the same period last year where MRNS recorded share of loss from associates worth Rs.354.24 million, it recorded share of profit from associates to the tune of Rs.119.80 million in 9M2025. This was because MRNS’s associated company Unicol Limited underwent an overhaul of its capital and operational structure during the year which coupled with lower financing rates greatly buttressed its financial performance. Lower discount rate also drove down MRNS’s finance cost by 61.70 percent in 9M2025. Net profit posted a striking year-on-year growth of 318.85 percent to clock in at Rs.1249.647 million in 9M2025. This translated into EPS of Rs.16.68 and NP margin of 11.64 percent in 9M2025 as against EPS of Rs.3.96 and NP margin of 3.84 percent recorded in 9M2024.

Future Outlook

The performance of sugar industry is contingent upon the sugarcane yield coupled with the increase in sugar prices by the authorities. According to initial sugarcane survey reports, sugarcane sowing area has increased by 10 percent this year. With no set minimum support price, leaving the prices to be determined by market forces, the farmer community is encouraged to increase the cultivation area of the crop. Decline in finance cost due to monetary easing, wise investment decisions and stabilization of Unicol Limited will support the financial performance of MRNS.

On the flipside, unfavorable weather conditions might result in lower sugarcane lower yield. The government is also taking administrative measures to control the final price of sugar which might result in decline in margins and profitability.