Shahmurad Sugar Mills at June 2026: Ethanol Strength, Sugar Losses and the Inventory Bill

Company Name: Shahmurad Sugar Mills Ltd

Ticker: SHSML

Reporting period: Nine months and quarter ended 30 June 2026

Reporting basis: Unaudited company-only interim financial statements. Al-Noor Sugar Mills is equity-accounted as an associate rather than consolidated.

Verdict

Shahmurad Sugar Mills produced a mixed nine-month result. Ethanol remained the economic engine and improved its segment profit despite almost flat external revenue, but sugar revenue fell sharply and that segment moved into an operating loss. At group-company level, revenue declined 10.6% and profit after tax fell 20.9%. The most consequential change was on the balance sheet: stock-in-trade nearly tripled, operating cash flow turned deeply negative and short-term borrowing rose by more than 60%. The official third-quarter report provides the full statements and segment disclosures.

The June quarter alone looked stronger at the top line: sales increased 31.0% from the comparable quarter. Yet gross margin compressed, finance cost increased and a much heavier tax charge left quarterly profit one-third lower. The result therefore combines an operating franchise that still earns well in ethanol with a working-capital cycle that became substantially more demanding.

The reporting frame

The board approved the results on 27 July 2026, and the company transmitted its third-quarter report to the exchange on 29 July 2026. The official PSX results notice confirms the exact period and announcement. Shahmurad’s PSX profile identifies the company as a manufacturer of sugar and ethanol with a September year-end.

Because these are nine-month statements, the most useful reading has two layers. The cumulative figures show how the full crushing and ethanol cycle has performed since October. The April–June quarter shows the more recent selling mix and margin conditions, but it is more exposed to inventory releases, export timing and tax movements. Both views matter.

Key comparison: current period versus prior comparable period

• Net sales — Rs15.197 billion versus Rs17.001 billion; down 10.6%. Lower sugar revenue was the main drag, while ethanol revenue was broadly steady. Source: nine-month income statement and segment note.
• Gross profit — Rs1.703 billion versus Rs1.886 billion; down 9.7%. Gross margin edged up to 11.2% from 11.1%, so the decline was principally a smaller revenue base rather than a material collapse in the consolidated gross spread. Source.
• Operating profit — Rs1.155 billion versus Rs1.299 billion; down 11.1%. Distribution expense fell 26.7%, but administrative expense increased 2.7% and other income almost halved. Source.
• Finance cost — Rs527.3 million versus Rs582.9 million; down 9.5%. This helped cushion the earnings decline, although the June-quarter finance charge was 10.2% higher year on year. Source.
• Profit after tax — Rs515.8 million versus Rs652.2 million; down 20.9%. Earnings per share declined to Rs24.42 from Rs30.88. Source.
• April–June sales — Rs7.879 billion versus Rs6.015 billion; up 31.0%. Gross profit rose only 10.0%, lowering gross margin to 9.2% from 11.0%. Source.
• April–June profit after tax — Rs196.1 million versus Rs294.0 million; down 33.3%. Tax expense was Rs126.6 million, compared with a net tax benefit in the prior comparable quarter. Source.

Ethanol remained the earnings anchor

Ethanol generated external revenue of Rs12.115 billion, only 1.2% below the prior period’s Rs12.257 billion. Its segment operating profit nevertheless increased 4.7% to Rs1.288 billion. That implies better segment economics even without revenue growth and made ethanol responsible for nearly four-fifths of company sales. The segment note separates external revenue and operating results by business.

Production was 45,228 tonnes, 1.0% lower than the prior period. Management attributes the segment’s resilience to timely raw-material procurement and favourable prices. That is a management explanation, not an independently proven cause; the financial evidence is the combination of steady revenue, slightly lower output and higher segment profit. Management’s operating review appears in the third-quarter report.

Economically, ethanol gives Shahmurad diversification away from the regulated and seasonal sugar market. Molasses is both a by-product of sugar milling and an externally sourced input, so procurement timing, feedstock prices, export demand, freight and foreign-currency realisation can all move margins. The strength of ethanol in this period did not eliminate the company’s sugar-cycle exposure, but it prevented the sugar weakness from becoming a company-wide operating loss.

Sugar output improved, but commercial economics weakened

The company crushed 503,232 tonnes of cane, up 6.7%, and produced 54,953 tonnes of sugar, up 14.6%. Recovery improved to 10.92% from 10.20%. These are genuine operating gains: more sugar was extracted from each tonne of cane. The production data are reported in management’s nine-month review.

Commercially, however, sugar external revenue fell 35.1% to Rs3.082 billion and the segment recorded a Rs63.7 million operating loss, compared with a Rs146.7 million profit. This contrast is the central result: physical efficiency improved, but the timing and economics of sales did not convert that efficiency into segment earnings. The segment disclosure supports the revenue and profit comparison.

AlphaGen inference: weaker sugar realisations, the pace of inventory release and cane cost absorption are the variables most consistent with the combination of higher production, lower external revenue and a segment loss. The filing does not quantify each factor’s individual effect, so no single cause should be treated as established. Investors should resist reading production growth alone as an earnings signal.

Inventory was the balance-sheet story

Stock-in-trade rose to Rs9.644 billion from Rs3.259 billion at September 2025, an increase of 195.9%. Trade receivables increased 54.0% to Rs1.711 billion, while sales-tax refundable balances rose 176.4% to Rs1.947 billion. Total assets expanded 16.9% to Rs26.678 billion, but the expansion was concentrated in working capital rather than cash-generating fixed assets. The statement of financial position shows these balances.

The cash-flow statement makes the funding consequence explicit. Operations used Rs7.977 billion of cash, compared with Rs2.978 billion in the prior period. The stock build alone absorbed Rs6.385 billion. Financing activities supplied Rs3.134 billion, driven primarily by a Rs3.311 billion increase in short-term borrowings. Source: cash-flow statement.

Short-term borrowings consequently reached Rs9.301 billion, up 61.3% from September, while current liabilities rose 42.3% to Rs10.616 billion. The accounting profit therefore did not translate into cash during the period. This is common in seasonal sugar businesses around production and inventory holding, but scale and duration matter: interest expense, selling prices and the timing of cash collection determine whether the working-capital build is temporary or becomes a persistent drag.

The company also disclosed Rs1.544 billion of inventory pledged to lenders, versus nil at year-end. Finished goods costing Rs181.8 million were carried at net realisable value of Rs149.1 million, implying a Rs32.8 million write-down. These details appear in the inventory and financing notes. The earlier half-year report provides the preceding point in the working-capital build.

Other income, associates, tax and investment activity

Other income fell 48.3% to Rs226.9 million. That reduced the buffer available below operating profit. Finance cost declined over the nine months, but the more recent quarter moved in the opposite direction as the balance-sheet funding need intensified. The income statement contains both cumulative and quarter-only figures.

Shahmurad acquired 1,848,300 shares of Al-Noor Sugar Mills for Rs219.8 million and accounts for it as an associate. The nine-month result includes a Rs4.9 million share of loss from the associate, while other comprehensive income includes Rs290.8 million related to it. The company also reported Rs1.290 billion of purchases from Al-Noor during the period. The investment, related-party and comprehensive-income notes provide these figures.

Readers should separate ordinary profit after tax of Rs515.8 million from total comprehensive income of Rs806.6 million. The latter includes the associate-related other comprehensive gain and is not the same as cash earnings. Likewise, the quarter’s lower profit partly reflects tax: the current quarter carried a Rs126.6 million income-tax charge, whereas the prior comparable quarter reported a net tax benefit. That comparison should not be extrapolated as an operating trend.

Capital spending, liquidity and distributions

Property, plant and equipment additions were Rs337.2 million, compared with Rs61.2 million in the prior period. Investing cash outflow was Rs1.105 billion and also included the associate investment and short-term investments. Cash on the balance sheet was Rs290.9 million, but after including running finance classified within cash equivalents, the period ended with a negative Rs41.1 million cash-equivalent position. Source: fixed-asset and cash-flow notes.

Dividend cash paid during the nine months was Rs124.4 million. The June results filing did not announce an interim cash dividend. The immediate capital-allocation question is therefore less about distributions and more about converting sugar stocks and receivables into cash while keeping financing costs controlled.

AlphaGen model readings

The four readings below are AlphaGen model outputs, not company-reported financial figures. They are presented as analytical context and should be read alongside the official accounts.

• Alpha QoQ Score: 42.2
• TTM Performance Score: 72.91
• 3Y Business Perf Score: 28.64
• Sector Leadership Score: 78.1339

Recurring drivers versus period-specific effects

Likely recurring

Sugar recovery, cane availability, the spread between sugar prices and cane costs, ethanol feedstock prices, export demand, currency realisation, energy costs and working-capital funding are recurring drivers. Segment mix is especially important because ethanol currently contributes the clear majority of sales and essentially all segment operating profit.

More period-specific

The associate acquisition, its other comprehensive income contribution, the quarter’s unusual tax comparison and the precise timing of the inventory build are more period-specific. They can materially affect reported profit, comprehensive income or cash flow without proving a durable change in the underlying operating franchise.

Risks and what to monitor next

• Sugar inventory conversion — track stock-in-trade, sugar selling prices and whether the June balance unwinds before the next crushing cycle.
• Debt and finance cost — watch short-term borrowings and the quarterly finance charge. Falling benchmark rates help only if borrowing volumes do not offset the rate benefit.
• Segment margin split — the most informative signal is whether sugar returns to profit while ethanol protects or expands its operating margin.
• Export and geopolitical exposure — management warned that Middle East disruption could affect ethanol exports; shipment timing and realisation should be checked against future disclosures. Source: management review.
• Tax normalisation — compare the effective tax burden over a full year rather than treating the current or prior June quarter as a stable run rate.
• Associate economics — separate cash dividends and share of profit or loss from other comprehensive valuation movements.

What the next result needs to show

A constructive next result would combine three things: lower inventory and short-term debt, a return to positive sugar segment profit, and continued ethanol resilience. Revenue growth without cash release would be less persuasive because the present balance sheet already carries a large seasonal funding burden. Conversely, even modest profit growth could be meaningful if it arrives with a substantial working-capital unwind.

The June 2026 filing therefore reads less like a simple earnings decline and more like a contest between two businesses and two time horizons. Ethanol supplied current earnings quality; sugar supplied better factory efficiency but weak commercial returns; and the balance sheet financed inventory that must still be monetised. The speed and price at which that happens will shape the economics of the full-year result.

Sources

• Shahmurad Sugar Mills, Third Quarterly Results for 1 October 2025 to 30 June 2026.
• Shahmurad Sugar Mills, official PSX financial-results notice for the period ended 30 June 2026.
• Shahmurad Sugar Mills, Half-Yearly Report for the six months ended 31 March 2026.
• Pakistan Stock Exchange, SHSML company profile and announcement record.