Interestingly, where overall market earnings are likely to remain almost flat in 2009, listed sugar companies posted significant increase of 126 percent earnings during FY09, primarily led by better sugar prices. Moreover, detail analysis shows that only in the last quarter (July-Sep 2009), their profits surged by 452 percent. Sample represents 97 percent of the total market capitalization including all the listed sugar companies except for Shekerganj and Sakrand Sugar Mills as they have not yet announced their full year results. According to analysis, total profitability of the sector stood at Rs2.4bn in FY09 as compared to earnings of Rs1.0bn in FY08, a significant increase of 126%. The key trigger that strengthened the sectors fundamentals was the hike in sugar prices by more than 100% backed by low sugarcane production and rising demand. Out of 28 sample companies, Colony Sugar Mills saw highest profit growth of 638% followed by Mirza Sugar Mills (411%), Al-Abbas sugar (276%), Mirpurkhas Sugar (236%) and Mehran Sugar (207%). However, despite decent surge in sugar prices, 2 companies (Hussein Sugar Mills and Sind Abadgar Mills) posted losses in 2009 compared to profits last year while 6 companies remained in red this year as well.Alone in 4QFY09 (Jul-Sep 2009), sugar companies posted stunning profitability growth of 454% to Rs862mn during Jul-Sep 2009 compared to Rs156mn in same period last year. Significant turnaround was witnessed by J.D.W Sugar as it posted profits of Rs349mn in 4QFY09 compared to loss of Rs4mn in 4QFY08. During last 12 months, sugar prices have almost doubled and trading at an all time high of US$740/ton (Rs65/kg) - excluding taxes and freight. Thus, owing to higher sugar prices in international markets, we expect local prices to remain high as the country is currently facing shortage of around 1mn tons of sugar. This will likely to impact positively on the bottom-line of these companies going forward.
