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Offline Farzooq

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Sugar Sector
« Reply #-1 on: December 14, 2012, 02:06:26 PM »
Sugar industry – prospects not that compelling given ground realities but exports offer good avenue
There is a tug of war going on between growers who had forced government in both Punjab and
Sindh province to increase support prices to Rs 170/kg to Rs 172/kg per 40kg wherein ex?mill
prices remain at around Rs 50/kg which means there is minimal margins left for mill owners; thus
making their prospects not that compelling at this point. However, we see better fundamentals in
JDWS, MRNS, HABSM, MIRKS and improvement in NONS (see earnings matrix on the following page).
Only trigger in the industry is the allowing of exports for which sugar players would jostle.

Sugar industry dynamics: much the same as it was decade ago
Sugar cane is one of the vital cash crops in Pakistan and second largest agro?based industry in Pakistan.
Pakistan is overall a fifth largest producer of sucrose. At present, the total mill production from Pakistan is
close to 3.1mn tons (output of 81sugar mills) wherein 2.6mn tons is sold out (showing 40% growth from last
year). As per newspaper reports, the Economic Coordination Committee (ECC) has allowed sugar mill owners
to export sugar (previously the quota was allocated at around which is now been converted into unlimited
exports). It further states that TCP has been asked to create a buffer of 0.5mn tons of sugar for the smooth
local consumption and supply populace in order to avert FY11 like crisis situation where prices of sugar
reached to unimaginable proportions wherein Supreme Court intervened; that was the time when sugar mills
made windfall profits.

In all sugar cane is an important crop which yields not only sucrose but in the same process (on the conveyer)
also produces higher margin products such as industrial alcohol for pharmaceutical companies (mostly
exported to European destinations such as Germany), ethanol as fuel and waste such as bagasse which is sold
out to local paper mills.

Sugar production emanates from all the provinces (mostly from Punjab and Sindh). However, most recovery
(crushing rate) comes from Punjab based mills i.e. more than 11%. But Pakistan’s average recovery rate is
stated to be 9.4%. Hence it is a kind of benchmark that the company having better recovery rate has the
highest proportion of margins.

Sugar cane support prices vis?à?vis sugar prices; mill owners would suffer in FY13
There is a concept of support prices both in Punjab and Sindh province. For instance, in FY10 Govt. of Punjab
had fixed price of Rs 100/kg over a 40kg bag. However in FY12, the support prices have increased to Rs 150 –
154/kg over a 40kg bag (latest reported as per 9 month accounts reported). As of November 2012, as per press
reports, Sindh Agriculture Department has rejected any possibility of reduction in official fixed price of Rs
172/kg per 40kg of sugar cane despite severe confrontation from mill owners. Same thing happens in Punjab.

Only last week, sugar production has started in Pakistan. As for the wholesale sugar price, it is ranging around
Rs 50/kg. As per industry people, the real cost of producing sugar (bearing in mind Rs 170/kg per 40kg sugar
cane price) is Rs 65/kg but it’s being available at Rs 50 – 51/kg (the prices could go as high as Rs 54/kg). But this
whole situation does not sound compelling for sugar companies in current financial year.
This means that government owing to political expediencies such as general elections would like to keep
growers happy by increasing support prices of sugar cane wherein sugar mill owners wouldn’t be able to
pass on the sugar prices to general public in early part of the 2013. Later on there is a likelihood that prices
of sugar could increase at the whims of sugar mills. Hence sugar outlook looks murky.
Molasses sales increased from Pakistan
In FY11, nearly 2mn tons of molasses was produced (mostly exported) as against 1.5mn tons in FY10. Till
9MFY12, we have seen increasing trend of molasses exports in major companies (also depicting good margins
since distillery prices hiked globally), however, now these prices have shown a decreasing trend. Molasses and
ethanol offers greater margins over sucrose yet constitute minimal part of segment wise sales.



Valuation: JDWS, MRNS, HABSM, MIRKS are better players; NONS has shown improvement
JDW Sugar is always been considered best company in terms of efficiencies (crushing recovery)
and progressive management; however, we signal a cautious stance given a situation where
companies may face tough months before elections. Among emerging players, NONS looks
attractive (offers greater free float of over 10mn shares).

scstarde
« Last Edit: December 14, 2012, 04:18:32 PM by M&M »
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Sugar Sector
« Reply #-1 on: December 14, 2012, 02:06:26 PM »

Offline SBM

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Re: Sugar Sector
« on: December 14, 2012, 02:19:28 PM »
thanks for creating a separate section for sugar, was thinking of doing the same myself for a few days now ...

there are some inaccuracies in the above report
1) Mirks also own part of unicol along with FRSM and MRNS
2)Sugar Indsutry Dynamics are nothing like they were 10 years ago, in the more progressive mills like mirks,aabs jdw etc, by-products are now the major cash earners... mills are lucky if they earn anything on sugar itself.
frsm is also a good pick with a clean balancesheet, not much if any long term debt..
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Offline SBM

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Re: Sugar Sector
« Reply #1 on: December 14, 2012, 02:27:18 PM »

Sugar tumbles on big Brazilian harvest
By Emiko Terazono
Sugar prices fell to their lowest in more than two years as confirmation of a large Brazilian crop pushed the market below a key technical level.
The benchmark ICE raw sugar fell below 18.66 cents a pound, regarded as a technical support level which had held for the past three months. It was trading at 18.42 cents per pound, the lowest since August 2010 and down 4.2 per cent from the start of the week.



“This is the week that the sugar market has come out of denial,” said Jonathan Kingsman of the Swiss sugar consultancy Kingsman.
For the past few months, investors have held record levels of net bearish positions in sugar due to the large forecast supplies from Brazil, the world’s largest exporter. However, the market had been supported by prospects that the Brazilian government would increase domestic gasoline prices, supporting ethanol usage, as well as the possibility that the rain in the South American country during the middle of the year had led to lower than expected production.
The bears were vindicated as Unica, the Brazilian industry association said the production of sugar at the end of November was 32.9m tonnes, up 6 per cent from a year before. Since most analysts were expecting 30m-33m tonnes for the whole year, the announcement sent sugar prices tumbling.
On fundamental supply and demand news, investors are now focused on the crops in India and Thailand, which are large sugar producers. The prospects for India, which had not seen enough rain at the start of the monsoon season, are expected to be better than initially forecast, although there is uncertainty about the Thai production numbers.

“The latest news out of Thailand is that sugar production is 8.5 per cent behind last year’s pace, but it’s still very early,” said Michael McDougall of brokers Newedge in New York.
On the technical front, traders and brokers remain wary of the large bearish positions on the futures market. A piece of positive news could trigger a rush to cover those positions, prompting a rally.
Another factor that could support the market, albeit temporarily, is the annual reweighting exercise by index funds. Institutional investors rebalance their portfolios in line with the weightings of the indices they track, and poorly performing commodities in 2012 are expected to get a boost from such buying.
This buying is expected to include some 30,000 sugar contracts, but traders said it may already be priced into the market.

http://www.ft.com/intl/cms/s/0/29720c12-4540-11e2-858f-00144feabdc0.html#axzz2F16Hobr2
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Offline Just Another Guy

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Re: Sugar Sector
« Reply #2 on: December 14, 2012, 02:41:12 PM »
Sugar industry – prospects not that compelling given ground realities but exports offer good avenue
There is a tug of war going on between growers who had forced government in both Punjab and
Sindh province to increase support prices to Rs 170/kg to Rs 172/kg per 40kg wherein ex?mill
prices remain at around Rs 50/kg which means there is minimal margins left for mill owners; thus
making their prospects not that compelling at this point. However, we see better fundamentals in
JDWS, MRNS, HABSM, MIRKS and improvement in NONS (see earnings matrix on the following page).
Only trigger in the industry is the allowing of exports for which sugar players would jostle.

Sugar industry dynamics: much the same as it was decade ago
Sugar cane is one of the vital cash crops in Pakistan and second largest agro?based industry in Pakistan.
Pakistan is overall a fifth largest producer of sucrose. At present, the total mill production from Pakistan is
close to 3.1mn tons (output of 81sugar mills) wherein 2.6mn tons is sold out (showing 40% growth from last
year). As per newspaper reports, the Economic Coordination Committee (ECC) has allowed sugar mill owners
to export sugar (previously the quota was allocated at around which is now been converted into unlimited
exports). It further states that TCP has been asked to create a buffer of 0.5mn tons of sugar for the smooth
local consumption and supply populace in order to avert FY11 like crisis situation where prices of sugar
reached to unimaginable proportions wherein Supreme Court intervened; that was the time when sugar mills
made windfall profits.

In all sugar cane is an important crop which yields not only sucrose but in the same process (on the conveyer)
also produces higher margin products such as industrial alcohol for pharmaceutical companies (mostly
exported to European destinations such as Germany), ethanol as fuel and waste such as bagasse which is sold
out to local paper mills.

Sugar production emanates from all the provinces (mostly from Punjab and Sindh). However, most recovery
(crushing rate) comes from Punjab based mills i.e. more than 11%. But Pakistan’s average recovery rate is
stated to be 9.4%. Hence it is a kind of benchmark that the company having better recovery rate has the
highest proportion of margins.

Sugar cane support prices vis?à?vis sugar prices; mill owners would suffer in FY13
There is a concept of support prices both in Punjab and Sindh province. For instance, in FY10 Govt. of Punjab
had fixed price of Rs 100/kg over a 40kg bag. However in FY12, the support prices have increased to Rs 150 –
154/kg over a 40kg bag (latest reported as per 9 month accounts reported). As of November 2012, as per press
reports, Sindh Agriculture Department has rejected any possibility of reduction in official fixed price of Rs
172/kg per 40kg of sugar cane despite severe confrontation from mill owners. Same thing happens in Punjab.

Only last week, sugar production has started in Pakistan. As for the wholesale sugar price, it is ranging around
Rs 50/kg. As per industry people, the real cost of producing sugar (bearing in mind Rs 170/kg per 40kg sugar
cane price) is Rs 65/kg but it’s being available at Rs 50 – 51/kg (the prices could go as high as Rs 54/kg). But this
whole situation does not sound compelling for sugar companies in current financial year.
This means that government owing to political expediencies such as general elections would like to keep
growers happy by increasing support prices of sugar cane wherein sugar mill owners wouldn’t be able to
pass on the sugar prices to general public in early part of the 2013. Later on there is a likelihood that prices
of sugar could increase at the whims of sugar mills. Hence sugar outlook looks murky.
Molasses sales increased from Pakistan
In FY11, nearly 2mn tons of molasses was produced (mostly exported) as against 1.5mn tons in FY10. Till
9MFY12, we have seen increasing trend of molasses exports in major companies (also depicting good margins
since distillery prices hiked globally), however, now these prices have shown a decreasing trend. Molasses and
ethanol offers greater margins over sucrose yet constitute minimal part of segment wise sales.



Valuation: JDWS, MRNS, HABSM, MIRKS are better players; NONS has shown improvement
JDW Sugar is always been considered best company in terms of efficiencies (crushing recovery)
and progressive management; however, we signal a cautious stance given a situation where
companies may face tough months before elections. Among emerging players, NONS looks
attractive (offers greater free float of over 10mn shares).

scstarde

Thank you for an exclusive thread for sugar. But zara pehlay post kar daitay to 1 ghanta bach jaata research ka  :$:

I agree with most parts of the report.

My top plays in the sector are MRNS, MIRKS and FRSM for the following reasons:

1) Consistency in profits over last 5-years.
2) Low P/E ratio as compared to other industry peers.
3) Above average recovery rates
4) All these 3 companies combined together hold equal shares in UNICOL which is EXPORTING ALL its produce mainly to European markets and with depreciating currency they would all benefit. Already their profits from associate has doubled as compared to last year.

Offline SBM

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Re: Sugar Sector
« Reply #3 on: December 14, 2012, 03:05:11 PM »
unicol is doubling capacity. it will come online 0ct-13. for some f%^&*ed up reason the companies have not mentioned it in their reports. but its common knowledge otherwise.
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Offline SBM

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Re: Sugar Sector
« Reply #4 on: December 14, 2012, 03:52:04 PM »
mirks just posted a horrible result.  huhu
http://www.kse.com.pk/notices-updates/detail2.php?id=4&nid=039540&pagesize=1&pageno=2

no cash, made loss in q4
15 % bonus
floored within minutes ..
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Re: Sugar Sector
« Reply #5 on: December 14, 2012, 03:58:19 PM »
HABSM stands SOLID to Stay with Targeting 30+
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Offline Just Another Guy

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Re: Sugar Sector
« Reply #6 on: December 14, 2012, 04:08:19 PM »
mirks just posted a horrible result.  huhu
http://www.kse.com.pk/notices-updates/detail2.php?id=4&nid=039540&pagesize=1&pageno=2

no cash, made loss in q4
15 % bonus
floored within minutes ..

Damn! I was on a phone call and it was all fine and when I returned to the screen after few minutes it was downlocked.  huhu


They are fond of giving bonus shares every damn year!  :@

As for the loss I guess last year bhe last quarter main they posted a loss if I am not mistaken?

Offline Just Another Guy

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Re: Sugar Sector
« Reply #7 on: December 14, 2012, 04:13:41 PM »
mirks just posted a horrible result.  huhu
http://www.kse.com.pk/notices-updates/detail2.php?id=4&nid=039540&pagesize=1&pageno=2

no cash, made loss in q4
15 % bonus
floored within minutes ..

Damn! I was on a phone call and it was all fine and when I returned to the screen after few minutes it was downlocked.  huhu


They are fond of giving bonus shares every damn year!  :@

As for the loss I guess last year bhe last quarter main they posted a loss if I am not mistaken?

Yea Last year they posted a loss of around Rs 6 and this year the loss was negligible but was enough to hurt the sentiments  :crying_anim02:

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Re: Sugar Sector
« Reply #8 on: December 14, 2012, 04:20:29 PM »
kia idiotic harkat ki hai ..  :o

they have dumped most of the stock they held till q3 at a gross loss. that means they wont be able to benefit much from the relaxation in exports.

 :@
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Offline Just Another Guy

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Re: Sugar Sector
« Reply #9 on: December 14, 2012, 04:49:43 PM »
Had it not been the gain they had on UNICOL, they would have posted a loss on their milling business! Gain from UNICOL rose by around 400% covering the loss on their milling business and earning a positive net income for them!

And they should disclose the extension to UNICOL if they really intend to do it, otherwise, wouldn't that be violation of rules? Non disclosure that is?


Offline M&M

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Re: Sugar Sector
« Reply #10 on: December 15, 2012, 12:30:52 PM »

"The only true wisdom is in knowing you know nothing." - Socrates

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Re: Sugar Sector
« Reply #11 on: December 17, 2012, 10:57:14 AM »
Dear Friends --- any update from PK --- the SUGAR scrips -tive against the Trend of Dec ????
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Re: Sugar Sector
« Reply #12 on: December 17, 2012, 11:03:31 AM »
Had it not been the gain they had on UNICOL, they would have posted a loss on their milling business! Gain from UNICOL rose by around 400% covering the loss on their milling business and earning a positive net income for them!

And they should disclose the extension to UNICOL if they really intend to do it, otherwise, wouldn't that be violation of rules? Non disclosure that is?

i dont think so .. they are not expanding, their non-listed associate company is expanding. I am sure full year accounts keh saath they will mention associate is expanding.
it seems stuck with this stock for a bit. lets c.
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Re: Sugar Sector
« Reply #13 on: December 17, 2012, 04:43:30 PM »
AOA. Right you are brother. I missed that point of UNICOL being an associate.

It did give chance to offload today but I was busy with work in the morning so could not sell. Anyways now its not appropriate to sell at this level and since the position was very small, I would rather keep it and MIGHT average it around 40.

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Re: Sugar Sector
« Reply #14 on: December 17, 2012, 05:21:30 PM »
at which price u have purchased?

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Re: Sugar Sector
« Reply #16 on: December 21, 2012, 09:59:13 AM »
 :biggthumpup:

http://www.kse.com.pk/notices-updates/detail2.php?id=4&nid=039608&pagesize=1&pageno=2

aabs 28 eps. 4 dps .  still no shares traded :D

though ethanol is now trading at 6 month lows or something, with very high inventories.
outlook turning dreary   :skeptic:

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Re: Sugar Sector
« Reply #17 on: December 26, 2012, 12:39:14 PM »
mirza sugar
eps 8.43
gross margins negative
+ve eps only because of otherincome (which looks one off )

If speaker of national assembly cannot get good rates for her sugar, who can ?  :skeptic:
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Re: Sugar Sector
« Reply #18 on: December 26, 2012, 12:42:10 PM »
mirza sugar
eps 8.43
gross margins negative
+ve eps only because of otherincome (which looks one off )

If speaker of national assembly cannot get good rates for her sugar, who can ?  :skeptic:

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