SGM Sugar Mills Limited (“SGM” or “the Company”) is a public unlisted company incorporated in Pakistan in September 2007. The Company’s principal business activity is the manufacture and sale of crystalline sugar.

The Company was incorporated in September 2007 and was formerly owned jointly by Dhabi Group (44%), Etihad Group (22%) and Mehar Family (34%). During May 2018, DM United Group, represented by the Essarani Family, acquired majority shareholding of the Company.

The Company primarily engages in the manufacturing and sale of crystalline sugar, along with related by-products such as molasses and bagasse. Its mill, located in Ghotki, Sindh, has a crushing capacity of 14,000 TCD, while the head office operates from Karachi. During MY25, the Company processed 1,016,236 tons of sugarcane, producing 93,745 tons of sugar and achieving a recovery rate of 9.22%.

The Company’s majority shareholding of 77% is held by the Essarani family through Deoo Mal Essarani (16%) and his three sons, Asha Ram Essarani (29%), Mahesh Kumar Essarani (13%) and Tara Chand Essarani (20%), while the remaining 23% is held by the Mehar family through Sardar Muhammad Baksh Khan Mehar (10%) and Sardar Ali Gohar Khan Mehar (13%).

Ownership stability is considered strong, as the Company’s controlling interest is consolidated within a single family. Shareholdings are clearly defined and distributed among individual family members, ensuring continuity in decision-making and alignment of long-term strategic interests.

The Essarani family has a longstanding presence in the agriculture sector and collectively operates under the banner of “DM United Group.” The Group’s portfolio includes Sindh Abadgar's Sugar Mills Limited, United Ethanol Industries Limited, Agro Trade Private Limited, United Agro Chemicals, and Ranipur Sugar Mills Private Limited, reflecting its diversified footprint across sugar, ethanol, trading, and agrochemicals segments.

The Company derives adequate financial strength from the support of its Group and sponsors. As of MY25, the Company reported total assets of ~PKR 12.75 billion, supported by a solid equity base of ~PKR 5.61 billion, reflecting a sound capitalization profile.

The Board of Directors consists of four members, including the Chief Executive Officer, all of whom serve as Executive Directors. All four members are from the Essarani family, with no representation from the Mehar family.

Mr. Deo Mal Essarani serves as the Chairman of the Board and brings over 46 years of diversified experience; he also chairs Sindh Abadgar's Sugar Mills Limited and United Ethanol Industries Limited. Mr. Tara Chand Essarani serves as a Director and has more than 20 years of experience in the sugar industry.

The Board’s effectiveness shows room for improvement, as evidenced by the low frequency of meetings and the absence of dedicated Board committees to oversee key functions and governance areas.

The Company’s external auditors, M/s Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants, classified as Category ‘A’ by the SBP and holding a satisfactory QCR rating from ICAP, have issued an unqualified opinion on the financial statements for the year ended September 2024.

The Company maintains a well-defined organizational structure to ensure efficient management and operational oversight. The highest level of authority rests with the Chief Executive, who is supported by the Resident Director – Mills and the Chief Financial Officer. Functional departments at the mill, including cane procurement, production, and mechanical operations, report directly to the Resident Director, providing clear reporting lines and effective operational control.

The Company is led by Mr. Asha Ram Essarani, who serves as the Chief Executive Officer and holds a B.E. in Civil Engineering. Key responsibility for managerial oversight and strategic decision-making rests with Dr. Tara Chand Essarani, a medical doctor by profession, member of the Pakistan Sugar Mills Association, and CEO of Sindh Abadgar's Sugar Mills Limited and United Ethanol Industries Limited. Dr. Tara Chand brings over 20 years of experience in the sugar industry and is supported by Mr. Saqib Ghaffar, Chief Financial Officer and Fellow Chartered Accountant with over 30 years of experience, and Mr. Haider Bux Rustamani, Resident Director, who has more than 25 years of industry experience.

The Company does not have formal management committees in place; however, fortnightly meetings are held to review business performance and discuss changes in the organizational structure, with the CEO and all Heads of Departments in attendance. Additional meetings are convened as needed to address urgent or specific matters.

The Company has implemented an ERP system from Cosmosoft, enabling integrated management of operations, finance, and reporting to support timely and informed decision-making.

Oversight and effective management of the Company are maintained through the internal audit department at the group level, which provides independent review of operational, financial, and compliance activities. The department is headed by Mr. Muhammad Moin, serving as the Group Internal Auditor and responsible for monitoring controls, managing risks, and ensuring governance across all group entities.

During the current crushing season, the absence of an announced support price has resulted in partial deregulation, with sugarcane procurement remaining market-driven and reflecting an increase in input costs compared to the previous year. While improved crop yields, better sucrose recovery, and expanded cultivation are expected to result in higher sugar production, the availability of carryover and imported stocks is likely to create a supply surplus in the domestic market. This anticipated oversupply may exert downward pressure on sugar prices at a time when mills are already facing elevated raw material costs and a rigid taxation structure, thereby compressing margins and weakening cash flow generation capacity. The resulting imbalance between cost escalation and price realization heightens liquidity and working capital risks, particularly for leveraged players, and may lead to sector-wide financial stress post-crushing season. In this backdrop, the pace and effectiveness of further deregulation, along with policy coordination among key stakeholders, will remain critical determinants of price stability and overall industry risk profile.

The industry is highly fragmented, with a large number of competitors, resulting in relatively low market shares for individual companies. The Company held a production market share of ~1.5% during MY25, reflecting its standing within the sector.

During MY25, the Company recorded total sales of ~PKR 12.47 billion, compared with ~PKR 14.03 billion in MY24, primarily reflecting a decline in domestic sales. Local sales contributed ~PKR 11.73 billion in MY25, down from ~PKR 13.83 billion in the previous year, while export sales increased to ~PKR 742 million from ~PKR 205 million in MY24, indicating growth in international markets.

During MY25, the Company’s profitability indicators demonstrated improvement across all levels. Gross margin increased to ~3.1% (MY24: ~12.6%), supported by higher average selling prices despite lower sales volumes. Operating margin also strengthened marginally to ~11.4% compared to ~11.2% in MY24, reflecting stable operating efficiency and controlled overheads. Net profit rose significantly to ~PKR 552 million (MY24: ~PKR 145 million), primarily attributable to a substantial decline in finance costs amid a more accommodative monetary environment. Consequently, net margin improved to ~4.4% from ~1.0% in the preceding year, indicating a notable recovery in bottom-line performance.

Looking ahead, management aims to strengthen business performance by emphasizing operational efficiency and optimization of existing resources. The Company does not have any major expansion plans in the near term, focusing instead on sustainable growth, cost management, and improving overall productivity to maintain long-term stability.

During MY25, the Company’s working capital cycle remained broadly stable, reflecting prudent liquidity management. Inventory days marginally increased to ~45 days (MY24: ~44 days), leading to a slight rise in gross working capital days to ~46 days from ~44 days in the preceding year. Trade payable days also increased to ~8 days compared to ~6 days in MY24, providing modest support to cash flow management. Consequently, net working capital days remained steady at ~38 days, indicating continued efficiency in managing operational liquidity and short-term funding requirements.

During MY25, the Company’s Free Cash Flows from Operations (FCFO) stood at ~PKR 1,756 million (MY24: ~PKR 1,773 million), remaining largely stable year-on-year. Coverage indicators improved meaningfully, primarily driven by a significant reduction in finance costs. Interest coverage strengthened to ~3.3x compared to ~1.7x in MY24, while total coverage improved to ~1.0x from ~0.7x in the preceding year. Debt payback metrics also reflected improvement, declining to ~2.2x from ~5.3x in MY24, indicating enhanced debt servicing capacity and improved financial flexibility.

As at MY25, the Company maintained a moderately leveraged capital structure, with the leveraging ratio declining to ~30.1% from ~36.7% in MY24, reflecting improved capitalization and partial deleveraging. Total debt stood at ~PKR 1.56 billion, comprising short-term borrowings representing ~27.3% of the total debt portfolio, while long-term borrowings, primarily obtained to finance BMR initiatives, had an outstanding balance of ~PKR 458 million. The Company’s equity base strengthened to ~PKR 5,614 million as at MY25 compared to ~PKR 5,261 million in MY24, supported by profit retention during the year.