Baba Farid Sugar Mills at June 2026: The Cost of Carrying PKR 5.17 Billion of Sugar

Verdict

• Company Name: Baba Farid Sugar Mills Ltd
• Ticker: BAFS
• Reporting period: Nine months ended 30 June 2026

Baba Farid Sugar Mills delivered a better crushing season but a much weaker financial outcome. Cane crushed, sugar production and recovery all improved, yet nine-month revenue fell 66% and gross margin compressed to 2.7%. The company moved from a PKR 503.5 million profit after levy in the comparable period to a PKR 417.6 million loss. The balance sheet explains the pressure: finished stock expanded to PKR 5.17 billion and short-term borrowing rose to PKR 5.01 billion, turning unsold sugar into a large financing burden.

This is an unaudited, standalone interim result for the nine months ended 30 June 2026, with the quarter ended on the same date shown separately. The financial-position comparison is against the audited 30 September 2025 year-end. Figures in this article are in Pakistani rupees and come from the official third-quarter report unless another source is identified. No buy or sell recommendation is being made.

AlphaGen model readings

The four readings below are AlphaGen model outputs. They are not financial figures reported by Baba Farid Sugar Mills and should not be confused with revenue, profit, margins or cash flow.

• Alpha QoQ Score: 12.69
• TTM Performance Score: 11.06
• 3Y Business Perf Score: 40.16
• Sector Leadership Score: 11.4167

What changed operationally

The 2025–26 crushing season began on 20 November 2025. Management reported that the mill crushed 587,963.945 metric tonnes of sugarcane and produced 59,060.750 tonnes of sugar, with average recovery of 10.041%. The comparable season figures cited by the company were 569,620.090 tonnes crushed, 54,991.500 tonnes of sugar and 9.653% recovery. That means cane throughput increased about 3.2%, sugar output rose about 7.4%, and recovery improved by 0.388 percentage points.

Recovery matters because a higher share of each tonne of cane becomes saleable sugar. Holding cane price and processing cost constant, better recovery lowers the cane cost embedded in each tonne of output. But those conditions did not hold. Management said intense competition among mills raised cane procurement prices, while energy costs also increased. The physical gain therefore could not prevent a severe margin decline.

Baba Farid’s plant is located near Okara and the company’s February 2026 corporate briefing described approved crushing capacity of 10,000 tonnes of cane per day and bagasse-based power generation of more than 8 MW for internal use. Bagasse helps reduce dependence on purchased energy during crushing, but it does not eliminate fuel, power, maintenance or financing costs. The capacity and product description are available in the official corporate briefing.

Nine-month comparison

Revenue and gross profit

• Net sales: PKR 2.666 billion versus PKR 7.848 billion, down 66.0%.
• Cost of sales: PKR 2.594 billion versus PKR 6.659 billion, down 61.0%.
• Gross profit: PKR 71.7 million versus PKR 1.189 billion, down 94.0%.
• Gross margin: 2.69% versus 15.15%, a decline of 12.46 percentage points.

The mismatch between revenue and cost is the core issue. Revenue contracted faster than cost of sales, so gross profit almost disappeared. This is consistent with the combination described by management: expensive cane, higher energy costs, surplus domestic sugar and export restrictions that constrained selling opportunities and prices. The company produced more sugar, but recognized far less sales value during the period.

Operating expenses and other income

• Selling and distribution expense: PKR 30.0 million versus PKR 60.3 million, down 50.3%.
• Administrative expense: PKR 158.0 million versus PKR 128.8 million, up 22.6%.
• Other operating income: PKR 80.9 million versus PKR 36.0 million, up 124.7%.
• Operating result: PKR 36.0 million loss versus PKR 999.2 million profit.

Lower distribution expense partly followed the decline in sales activity, but administration moved in the opposite direction. Other income more than doubled and cushioned the loss, yet it was too small to replace the PKR 1.12 billion reduction in gross profit. The operating reversal was therefore driven primarily by the economics of producing and selling sugar, not by a single below-the-line charge.

Finance cost, levy and bottom line

• Finance cost: PKR 347.5 million versus PKR 398.9 million, down 12.9%.
• Result before levy: PKR 383.5 million loss versus PKR 600.3 million profit.
• Levy: PKR 34.1 million versus PKR 96.8 million.
• Net result: PKR 417.6 million loss versus PKR 503.5 million profit.
• Earnings per share: negative PKR 44.19 versus positive PKR 53.28.

Finance cost fell in absolute terms, but it consumed almost five times the period’s gross profit. The result did not contain an income-tax charge; the levy took the loss to PKR 417.6 million. The official PSX result filing dated 27 July 2026 corroborates the announced loss and period. See the financial-results filing.

The June quarter was even thinner

For the three months ended 30 June 2026, revenue was PKR 1.637 billion, down 55.5% from PKR 3.674 billion in the comparable quarter. Gross profit was only PKR 14.9 million versus PKR 686.0 million, taking quarterly gross margin to 0.91% from 18.67%. After operating expenses, the quarter produced a PKR 27.3 million operating loss. Finance charges of PKR 187.6 million then led to a PKR 235.3 million net loss, against a PKR 446.2 million profit a year earlier. Quarterly loss per share was PKR 24.90.

This quarter matters because it shows the weakness was not merely a first-half timing issue. Baba Farid sold meaningful product after the crushing season, but the residual spread between sales and cost was less than 1%. Once administrative and financing costs were included, the quarter was deeply loss-making. Better pricing, lower inventory cost or substantially cheaper funding would be needed to restore a durable profit.

Inventory became the centre of the balance sheet

Stock in trade rose from PKR 84.9 million at 30 September 2025 to PKR 5.165 billion at 30 June 2026—a roughly 61-fold increase. The cost-of-sales note shows closing finished goods of PKR 5.157 billion. This is the accounting consequence of producing during the crushing season but not selling a large share of output by June.

High inventory is not automatically a permanent loss. If sugar is sold later at adequate prices, stock converts into revenue and cash. The risk is carrying economics: the company must finance cane purchases and factory costs while the sugar remains unsold. If market prices fall below the inventory’s realizable value, or if holding and financing costs accumulate, later sales may still produce weak margins. Management explicitly linked the difficult outlook to surplus production, lower sugar prices and export restrictions.

Total assets rose from PKR 6.505 billion to PKR 11.951 billion, almost entirely because current assets expanded to PKR 6.750 billion. Equity declined from PKR 5.254 billion to PKR 4.817 billion after the period loss and a PKR 18.9 million final dividend. The company’s large revaluation surplus and PKR 3.003 billion of directors’ loans support the capital structure, but neither is a substitute for operating cash generation.

Borrowing funded the stock build

Short-term borrowing jumped from PKR 104.8 million at September 2025 to PKR 5.007 billion at June 2026. Of that amount, PKR 4.807 billion was cash finance secured against pledged refined sugar, with pricing linked to KIBOR plus 0.75% to 1.50%; a further PKR 200 million related to agricultural-input financing. Accrued mark-up rose to PKR 503.5 million from PKR 278.6 million.

The cash-flow statement makes the funding loop visible. Working capital absorbed PKR 5.168 billion, dominated by the inventory increase. Net operating cash outflow reached PKR 4.637 billion, compared with a PKR 1.443 billion inflow in the prior period. Financing supplied PKR 4.976 billion, mainly through PKR 4.902 billion of net short-term borrowing. Cash consequently rose to PKR 721.0 million, but the increase came from borrowing rather than from operations.

This does not mean liquidity had already failed: the company maintained cash, secured facilities and inventory available for sale. It does mean cash conversion became highly sensitive to the pace and price of sugar sales. A slow unwind would keep interest expense elevated; a faster, profitable unwind would release working capital and reduce debt.

Product mix and recurring versus non-recurring drivers

Baba Farid’s principal product is refined sugar, with molasses, bagasse and filter cake as by-products. Molasses and bagasse revenue provides useful diversification, but the financial statements show no separate operating segment capable of offsetting a collapse in sugar margins. Bagasse is also used for in-house power generation. The company is therefore best understood as a single-cycle sugar manufacturer whose by-products reduce net processing economics rather than a diversified industrial group.

The stronger recovery rate is an operational improvement and could recur if cane quality and milling discipline remain favourable. The extreme stock build and borrowing are more period-specific, although inventory financing is structurally common in seasonal sugar. Other operating income helped but was not the main earnings engine. The revaluation surplus is an equity reserve and did not create period profit or cash. The PKR 18.9 million dividend related to the year ended September 2025 and reduced equity and cash during the current period; no new payout was announced with these results.

What management says—and what the numbers imply

Management attributed the margin pressure to strong competition for cane, higher procurement cost and increased energy prices. It also described the domestic market as burdened by surplus sugar production and export restrictions, with the outlook dependent on deregulation and export permissions. These are management statements from the report, not independent forecasts.

The AlphaGen inference is narrower: operational efficiency alone cannot repair the earnings profile while inventory remains expensive and slow-moving. The decisive variables are the eventual selling price of the PKR 5.17 billion stockpile, the time required to sell it, and the financing cost incurred before conversion to cash. Government export policy can alter that pace, but reliance on policy relief is itself a risk.

Risks and what to monitor next

• Inventory realization: track stock in trade, sales volume and gross margin to see whether sugar is sold above carrying cost.
• Debt unwind: short-term borrowing and accrued mark-up should fall as inventory converts into cash; failure to decline would signal continued working-capital stress.
• Cane economics: watch procurement price, tonnes crushed and recovery together. Higher throughput is not valuable if cane cost erodes the conversion margin.
• Sugar policy: export permissions, deregulation and domestic supply affect selling price and inventory clearance.
• Energy and rates: bagasse power offers some protection, but KIBOR-linked borrowing and factory energy costs remain material.
• Cash flow: operating cash generation matters more than the period-end cash balance because current cash was supported by financing.
• Related-party funding: directors’ loans remain PKR 3.003 billion and are subordinated under banking arrangements; readers should monitor any change in terms or repayment.

How to read the next result

Begin with revenue, gross profit and gross margin, then compare inventory and short-term borrowing with June. A healthy normalization would combine higher sales, a material inventory decline, debt repayment and positive operating cash flow without another collapse in margin. Inventory falling only because sugar is sold at uneconomic prices would improve liquidity but not earnings quality.

Then separate factory performance from market performance. Recovery and crushing volumes reveal plant and cane efficiency; gross margin reveals whether those physical gains were monetized; finance cost shows the price of delayed cash conversion. Finally, compare management’s policy expectations with actual export permissions and realized sales. The next annual result should reveal whether June’s stockpile represented deferred earnings or a prolonged financing problem.

Sources

• Baba Farid Sugar Mills — Third Quarterly Report 2026
• Pakistan Stock Exchange — financial-results filing dated 27 July 2026
• Pakistan Stock Exchange — BAFS company profile and announcement index
• Baba Farid Sugar Mills — FY2025 corporate briefing presentation
• Baba Farid Sugar Mills — official mill and registered-office details