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Chashma Sugar Mills at June 2026: Margin Recovery Meets an Inventory-Funded Cash Drain

Chashma Sugar Mills returned to nine-month profit, but the June quarter stayed loss-making as sugar inventory, borrowing and cash outflow climbed.

Aug 10, 2026

Verdict

  • Company Name: Chashma Sugar Mills Ltd
  • Ticker: CHAS
  • Reporting period: Nine months ended 30 June 2026; latest quarter 1 April to 30 June 2026
  • Reporting basis: Unaudited standalone accounts are the primary analytical basis; consolidated figures are identified separately.

Chashma Sugar Mills returned to a standalone nine-month profit as sales expanded, the sugar division recovered and finance cost declined. Net sales rose 62.3% to PKR 25.05 billion, gross margin nearly doubled to 18.95%, and profit after tax reached PKR 139.9 million after a PKR 1.48 billion loss in the comparable period. That is a substantial income-statement recovery, but not yet a clean cash-flow recovery.

The June quarter tells a more cautious story. Quarterly sales grew 50.8%, but gross margin narrowed, operating profit increased only 6.9%, finance cost rose above operating profit and the company recorded a PKR 170.7 million loss after tax. At the same time, sugar inventory climbed sharply and operating cash outflow reached PKR 14.30 billion over nine months. The result therefore combines stronger production economics with heavy seasonal working-capital funding and continued financing pressure.

The Board approved the results on 29 July 2026, and the official unaudited interim report was transmitted through the Pakistan Stock Exchange on 30 July 2026. Amounts below are converted from the filing’s Pakistani-rupees-in-thousands presentation into billions or millions for readability.

AlphaGen model readings

The four readings below are AlphaGen model outputs. They are not company-reported financial figures and should not be confused with sales, profit, margins, cash flow or management guidance.

  • Alpha QoQ Score: 71.75
  • TTM Performance Score: 93.47
  • 3Y Business Perf Score: 62.33
  • Sector Leadership Score: 72.7

Reporting basis and comparability

This analysis starts with the listed company’s standalone statement because it provides the clearest bridge across sales, costs, working capital and financing. Chashma Sugar Mills is a subsidiary of The Premier Sugar Mills and Distillery Company Limited. Its group accounts also consolidate Whole Foods (Private) Limited. The official result announcement presents both bases, and readers should not mix standalone revenue or EPS with consolidated profit.

Comparability also requires care because the Flour Division is a post-merger operation. The interim report says Ultimate Whole Foods (Private) Limited merged into Chashma Sugar Mills on 10 June 2025. The nine-month 2026 company numbers therefore contain a fuller flour contribution than the prior-year period. The revenue increase is genuine, but not every rupee represents organic growth from the same perimeter.

Nine-month result: the main comparison

Sales expanded faster than the cost base

  • Gross sales: PKR 27.733 billion versus PKR 17.472 billion, up 58.7%.
  • Net sales: PKR 25.049 billion versus PKR 15.436 billion, up 62.3%.
  • Cost of sales: PKR 20.302 billion versus PKR 14.032 billion, up 44.7%.
  • Gross profit: PKR 4.748 billion versus PKR 1.404 billion, up 238.0%.
  • Gross margin: 18.95% versus 9.10%, an improvement of 9.85 percentage points.

The key economic improvement is the spread between sales and production cost. Net sales increased by PKR 9.61 billion while cost of sales increased by PKR 6.27 billion, allowing gross profit to rise by PKR 3.34 billion. The margin expansion indicates that the combination of higher output, selling mix and retained price more than absorbed the additional cane, wheat, processing, labour and energy cost over the nine-month period.

Local gross sales were PKR 22.27 billion, nearly double PKR 11.43 billion, while export sales declined to PKR 5.46 billion from PKR 6.04 billion. That mix shows the top-line expansion came from the domestic side, not an export surge. The filing does not provide a product-by-product price and volume bridge, so it would be unsafe to assign the entire increase to sugar price or tonnes alone.

Operating profit recovered, but overheads grew

  • Selling and distribution expense: PKR 948.9 million versus PKR 814.1 million, up 16.6%.
  • Administrative and general expense: PKR 1.270 billion versus PKR 1.050 billion, up 21.0%.
  • Other income: PKR 261.0 million versus PKR 716.7 million, down 63.6%.
  • Operating profit: PKR 2.735 billion versus PKR 253.2 million, up about tenfold.

Distribution and administration both rose, but much more slowly than revenue, which created operating leverage. Other income fell by PKR 455.7 million, meaning the recovery was not manufactured by a larger non-core income line. Gross profit did the heavy lifting. Other expenses increased to PKR 54.9 million from PKR 4.0 million, but this remained small relative to the gross-profit gain.

Finance cost still absorbed most operating profit

  • Finance cost: PKR 2.344 billion versus PKR 2.663 billion, down 12.0%.
  • Profit before minimum tax and income tax: PKR 390.3 million versus a PKR 2.410 billion loss.
  • Minimum tax levy: PKR 268.8 million versus PKR 193.7 million.
  • Profit after tax: PKR 139.9 million versus a PKR 1.482 billion loss.
  • Earnings per share: PKR 4.88 versus a loss per share of PKR 51.65.

Lower finance cost helped, but it still consumed 85.7% of operating profit. After minimum tax, only PKR 121.5 million of pre-tax profit remained; an income-tax credit lifted the final result to PKR 139.9 million. The return to profit is therefore meaningful but thin relative to PKR 25.05 billion of sales. A modest deterioration in margin or renewed borrowing-cost pressure could erase it.

The June quarter remained loss-making

  • Quarterly net sales: PKR 8.267 billion versus PKR 5.483 billion, up 50.8%.
  • Quarterly gross profit: PKR 1.461 billion versus PKR 1.060 billion, up 37.9%.
  • Quarterly gross margin: 17.68% versus 19.32%, down 1.64 percentage points.
  • Quarterly operating profit: PKR 546.0 million versus PKR 510.7 million, up 6.9%.
  • Quarterly finance cost: PKR 999.9 million versus PKR 829.0 million, up 20.6%.
  • Quarterly loss after tax: PKR 170.7 million versus PKR 239.6 million, a 28.7% narrower loss.

Revenue growth did not translate proportionately into quarterly gross profit. Selling and distribution expense rose 42.8%, administration rose 49.6%, and other income fell 86.4%. Finance cost then exceeded operating profit by about PKR 454 million. A PKR 380.7 million tax credit narrowed the final loss, so the improvement in loss after tax should not be read as a fully repaired operating quarter.

The quarter also reveals a timing issue. Sugar manufacturing is seasonal: cane is crushed during the season, inventory is accumulated and cash is recovered as product is sold later. The company can therefore report a profitable nine-month period while the latest quarter and operating cash flow remain weak. Investors should track the unwind of inventory and debt, not just the year-to-date EPS.

Production and segment economics

According to management’s review in the interim report, crushing ran from 15 November 2025 to 19 March 2026. The company crushed 1.913 million metric tonnes of cane, achieved sucrose recovery of 10.78% and produced 206,312 metric tonnes of sugar. Through 22 July 2026, the ethanol fuel plant produced 28,103 metric tonnes and the flour operation produced 39,067 metric tonnes. These are management-reported operating measures, not independently audited forecasts.

The sugar division generated nine-month net sales of about PKR 14.07 billion and segment profit of PKR 2.36 billion, compared with only PKR 55.8 million of segment profit in the prior period. Management attributes the improvement to greater crushing and production efficiency. This is consistent with the gross-margin recovery, although the filing does not disclose enough data to calculate cane cost or realization per tonne.

The ethanol division produced PKR 6.83 billion of net sales and PKR 253.0 million of segment profit, up from PKR 197.4 million. Management cites export demand, production volume and operating efficiency, while noting weaker third-quarter margins and higher costs. Ethanol depends on molasses availability, export markets, exchange rates and plant utilization; its cash economics can differ materially from domestic sugar.

The post-merger flour division contributed PKR 4.48 billion of net sales and PKR 123.2 million of nine-month segment profit, but management says it lost roughly PKR 211 million in the third quarter because of operating and administrative costs and provincial wheat-procurement restrictions. Flour diversifies revenue, yet it introduces wheat inventory, procurement policy and food-processing execution risks.

Balance sheet: inventory and borrowing expanded together

  • Total assets: PKR 49.786 billion at 30 June 2026 versus PKR 33.919 billion at 30 September 2025.
  • Stock-in-trade: PKR 20.260 billion versus PKR 7.104 billion.
  • Finished sugar inventory: PKR 15.352 billion versus PKR 3.834 billion.
  • Long-term finance: PKR 8.834 billion versus PKR 3.950 billion.
  • Short-term finance: PKR 25.139 billion versus PKR 12.876 billion.
  • Equity: PKR 10.352 billion versus PKR 10.212 billion.

The asset expansion was predominantly funded by debt rather than retained earnings. Stock-in-trade increased by PKR 13.16 billion, with finished sugar accounting for most of the balance. Total long- and short-term finance increased by PKR 17.15 billion, while equity increased only by the period’s profit. The note also states that certain borrowings are secured by a collateral charge over inventory.

That is typical of a seasonal sugar cycle but materially raises financial sensitivity. If inventory sells promptly at favourable prices, cash can repay short-term finance and interest expense can fall. If sales are delayed, prices weaken or administrative controls constrain realization, inventory remains funded and finance cost compounds. The inventory-to-equity ratio was almost two times at period-end, so the speed and price of conversion matter.

Loans and advances also increased to PKR 4.079 billion from PKR 1.189 billion, mostly advances to suppliers and contractors. Trade payables fell to PKR 2.703 billion from PKR 4.287 billion. Both changes used liquidity: the company paid down supplier credit while committing more cash in advance.

Cash flow: profit did not become cash

  • Cash profit before working-capital changes: PKR 4.053 billion versus PKR 907.1 million.
  • Operating cash used: PKR 14.305 billion versus PKR 8.430 billion.
  • Cash absorbed by stock-in-trade: PKR 13.156 billion versus PKR 8.461 billion.
  • Finance cost paid: PKR 1.750 billion versus PKR 2.282 billion.
  • Net financing inflow: PKR 4.307 billion versus a PKR 6.304 billion outflow.
  • Closing cash and cash equivalents: negative PKR 18.583 billion versus negative PKR 12.755 billion.

The cash-flow statement reconciles the central tension in the result. Operations generated a stronger profit before working-capital movements, but inventory, advances and lower payables absorbed much more cash. Borrowing financed part of the gap. Reported profit is therefore not fictitious; it is trapped largely in unsold stock and other working capital rather than received as cash by period-end.

No current-period dividend payment appears in the cash-flow statement, and the Board’s result notice did not announce a new cash dividend. Capital expenditure was PKR 362.8 million. The immediate capital-allocation priority visible in the numbers is funding seasonal working capital and servicing debt.

On a consolidated basis, nine-month net sales were the same PKR 25.049 billion, but profit after tax was lower at PKR 42.0 million and EPS attributable to owners was PKR 1.46. The comparable period produced a PKR 2.086 billion loss and loss per share of PKR 70.15. For the June quarter, consolidated loss after tax was PKR 198.2 million versus PKR 346.9 million. These figures confirm a group-level recovery while showing that subsidiary costs dilute the standalone outcome.

Chashma Sugar Mills converted PKR 823.5 million of receivables from Whole Foods into equity on 31 January 2026 after shareholder approval, raising the carrying cost of the subsidiary investment. The company also carries amounts due from its holding company and provides a loan facility to it. These are disclosed related-party arrangements; readers should monitor repayment, impairment and whether cash remains available to the listed company.

Management context and major sensitivities

Management describes a domestic sugar surplus, delayed export approvals and administrative pricing controls as pressures on industry economics. It also says high cane procurement and finance costs compressed factory-gate margins, and that modernization work at the ethanol plant is progressing. These are management statements in the directors’ review. They explain management’s view but should be tested against future selling prices, export volumes, inventory conversion and audited cost disclosures.

  • Sugar price and regulation: controls, export quotas and timing can determine how quickly accumulated stock converts into revenue and cash.
  • Cane availability and cost: procurement price, recovery rate and crushing utilization drive sugar cost per tonne.
  • Interest rates and leverage: large seasonal borrowings make earnings highly responsive to both rates and repayment speed.
  • Ethanol exports and currency: export demand can support utilization and foreign-currency revenue, while molasses cost and global pricing affect margin.
  • Wheat policy and flour execution: procurement restrictions and operating costs can turn the new division from diversification into a drag.
  • Related parties: subsidiary investment, receivables and lending to the holding company require close cash and impairment monitoring.

What to monitor next

First, watch finished sugar inventory and short-term finance together. A healthy post-season result should show inventory falling, operating cash flow turning positive and short-term borrowing declining. If only sales rise while debt and finance cost remain elevated, the cash conversion problem has not resolved.

Second, separate nine-month momentum from the latest quarter. The next result should be tested for gross margin, operating profit before other income, finance cost coverage and profit before tax. A narrower loss created mainly by another tax credit would be weaker evidence than operating profit that comfortably exceeds finance cost.

Third, track segment quality. Sugar needs evidence on sales realization, volumes and recovery; ethanol needs export volume and margin; flour needs proof that the third-quarter loss was temporary. Finally, reconcile standalone and consolidated earnings and review any further funding of Whole Foods or the holding company.

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