JDW Sugar Mills Limited 

Founded in 1990 as a private limited company in Rahim Yar Khan, Jehangir Tareen’s JDW Sugar Mills Limited (PSX: JDWS) is by far the largest sugar producer in Pakistan. It single-handedly accounts for around 15-17 percent of Pakistan’s sugar production. With a market capitalisation north of Rs20.03 billion, JDW is the only sugar company in the KSE100 index.

From the original Rahim Yar Khan unit, the company expanded and went on to acquire two more units; JDW Unit 2 (formerly United Sugar Mills) came into being in 2005, while JDW Unit 3 (formerly Ghotki Sugar Mills) was incorporated in 2006. The three units put JDW’s combined crushing capacity at 44,500 TCD (tonnes of cane per day).

The company has two subsidiaries as well – Deharki Sugar Mills (Pvt.) Limited and Faruki Pulp Mills Limited. Together, these form the consolidated JDW Group, which claims annual revenue of almost Rs50 billion as of MY17 (Marketing Year). 

While sugar manufacturing is the core business, JDW Sugar Mills entered two other segments; corporate farming and co-generation. In corporate farming, the company has established efficient and eco-friendly farms with higher yields, building the capacity of its farmers and giving an improved cane supply. For co-generation, the company has set up two bagasse-based, high-pressure co-generation power plants with a total capacity of approximately 53 MW, both of which were inaugurated in 2014.

JDW’s marketing year starts in October and ends in September.

Pattern of shareholding

Three directors/dependents own 51 percent of the company: these include ex-Governor Punjab Mukhdoom Syed Ahmed Mahmud at 26.1 percent, followed by Jahangir Tareen at 21.8 percent and Mrs. Tareen at 3.8 percent. All in all, over 51 percent of JDWS stock is thus in the hands of the owners. Mr. Tareen’s son Ali Tareen also holds an additional 13.6 percent. The figures quoted are as per MY17 financials.

Other than directors and their family, the next largest chunk is held with the public, all of whom are local investors, holding 38 percent. Close to nine percent of the stock is held with joint stock companies, foreign companies, investment companies, and others, which are yet ‘to be specified.’

Historical performance

With the price of sugarcane fixed by the provinces at exorbitantly high rates, the sugar industry has been suffering and a lot of sugar mills are in the red. However, it seems that JDW has never been one of them; the company has been on a growth momentum for past several years, with 5 years sales CAGR at 10.9 percent.

One of the secrets to JDW’s success could be its high recovery rates. One or the other of the company’s units always delivers the highest recovery rate in Pakistan; well above the national average. The most recent year saw the highest recovery in Punjab from the units JDW 1 and JDW 2. Southern Punjab is more climatically conducive for sugarcane crop, where recovery is more than two percent compared to central and northern Punjab, an official of PSMA once told BR Research.

JDW’s sugar production has maintained an uptrend as well (although it dropped in MY15 owing to unfavorable crop conditions caused by lack of rain and non-availability of irrigated water). The company’s hold on the domestic market remains strong; exports form less than five percent of JDW’s sales, and the rest is marketed locally.

A cursory look at JDW’s segments confirms that the company has been earning most of its money from sugar. However, the recent improvement in margins over the past couple of years could be due to the activity seen in the electricity segment, which saw two plants come online in 2014.

Recent performance

JDW recorded a mixed performance in MY17. While the top line recorded double-digit growth at 22 percent, profitability declined as price of sugar, molasses, and bagasse declined due to excess sugar cane cultivation compared to the previous year.

During the year, aggregate sugarcane crushing was higher by 44 percent, and total sugar production increased by 35 percent due to extended recovery season of 170 days. Average sucrose recovery declined by 67 bps because of unfavorable weather conditions, massive early logging of sugarcane and sowing of unapproved varieties of sugarcane by growers which resulted in sucrose recovery.

Nevertheless, as mentioned previously, JDW units 1 and 2 achieved 10.27 percent sucrose recoveries – the highest achieved by any mill in the province of Punjab. Sucrose recoveries by the other two group sugar units in Sindh were also among top sugar mills of the province.

As per the Director’s Report, the higher sales are attributable to better sugar prices, timely receipt of sugarcane and export subsidies, increase in sugar production, and smooth functioning of co-generation plants solely from internally produced bagasse. This has brought up the gross profit ratio. Moreover, cost savings came on account of oil and lubricants, chemicals, and packing material.

During the year, the company’s units 1 and 2 exported 80,878 MT of sugar on which the federal government allowed an export subsidy of Rs10.70 per kg. This represents 16 percent of total sugar exported by the country.

Outlook 

Once again, the country is looking at a surplus of sugar and the federal government has recently allowed export of sugar up to 225,000MT without any export subsidy, valid until 31st March, 2018. Since global sugar prices have plummeted, the export subsidy is keeping the local players competitive, especially given the glut in domestic market.