AN INTERNSHIP PEPORT

INDUS SUGAR MILLS KOT BAHADUR

RAJAN PUR

SUBMITTED BY:

ABDUL WAHEED
mc060402263
SPRING 2008
DATE OF SUBMISSION 22-10-2008
VIRTUAL UNIVERSITY OF PAKISTAN

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2.
DEDICATION

I dedicated my project to my parents

And all

My friends who love my very much.

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3.

ACKNOWLEDGEMENT

First of all I much thankful to Almighty Allah who has been enable to prepare

this internship report.

I am also thankful to my friends, respondents who always stood with me

shoulder to shoulder while preparing this internship report. And who provided help

me and suggestions when and where needed.

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4. EXECUTIVE SUMMARY

Pakistan’s sugar industry, considered to be one of the best organized industrial sectors

in the country, is also among the country’s leading economic enterprises, directly or

indirectly employing over 10 million people. Comprising 77 mills, 38 in the province

of Punjab, 32 in Sindh, 6 in the North West Frontier Province (NWFP), and one in

Azad Jammu and Kashmir (AJK), the industry produced nearly four million tones of

sugar during 2003-04 and has a full production capacity estimated at five million

tones, well exceeding the estimated domestic demand of 3.60 million tones (GOP

2002-03). Almost the entirety of the sugar output is used domestically while molasses,

a by-product of sugar production, is mostly exported to other countries. A few sugar

mills also use part of the molasses to produce industrial alcohol (ethyl alcohol) a

significant quantity of which is exported.

Pollution control measures for such a large-scale industrial operation must be

carefully planned to minimize risks to health and environment. The sugar production

process is known to produce substantial levels of solid waste, water, and noise

pollution. The highly polluted wastewater from sugar mills, in particular, poses a

substantial danger to health and environmental quality. Chemical analysis of effluent

samples from a number of sugar mills around the country revealed the presence of

several water pollutants in amounts exceeding National Environmental Quality

Standards (NEQS). The ensuing discussion and analysis explores the implications of

these results.

5. Photocopy of the internship certificate (Will be provided at the time of

final submission)

6. Photocopy of the Evaluation Certificate (Will be available when required)

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7.

Sr. No. Table of Contents Page

1 Title Page 1
2 Dedication 2
3 Acknowledgement 3
4 Executive Summary 4
5 Photo copy of Internship Certificate 4
6 Photo copy of Evaluation Certificate 4
7 Table of Contents 5
8 Brief introduction of the organization 7
9 Overview of the Organization 8
9.1 Brief history 8
9.2 Nature of the organization 9
9.3 Business volume 12
9.4 Product lines 30
9.5 Competitors 32
10 Organizational structure 33
10.1 Organizational Hierarchy chart 33
10.2 Number of employees 34
10.3 Main offices 34
10.4 Comments on the organizational structure 34
11 Plan of Internship 34
11.1 A brief introduction of the branch where did internship 34
11.2 Starting and ending dates of your internship 35
11.3 Internship Department and duration 35
12 Training program 35
12.1 Introduction of all the departments 35
12.2 Detailed description of the department 37
13 Structure of the Finance Department 37
13.1 Department hierarchy 37

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 13.2 Number of employees working in the Finance department 37
13.3 Finance Department operations 37
14 Function of the Marketing Department 39
14.1 Marketing strategies 39
14.2 Product planning, development & management 41
14.3 Pricing strategy 41
14.4 Distribution strategy 45
14.5 Promotional strategy 46
15 Critical analysis 46
15.1 Success & failure of different products of the organization 46
15.2 Major competitors of the organization 47
15.3 Future prospects of the organization 47
16 SWOT analysis of organization in the business sector 47
17 Conclusion & recommendations for improvement 53
18 Reference & Sources used 59
19 Annexes 59

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8. INTRODUCTION OF THE ORGANIZATION

Indus Sugar Mills is a closely held public limited company. It is situated in Kot

Bahudar, District Rajan Pur, with its head office in Lahore. Since its inception in

1993 its management has been changed three times. Now a day its General Manager

is Mian Bashir Ahmad. Its designed capacity is 6000 ton sugar cane crushing daily,

while its present actual capacity is 8000 ton daily. Sugar manufacturing is a seasonal

business and Mill performs its operation from November to April.

Ownership break-up

Although the Mill is registered as Public limited company but its shares have never

been offered to general public. All the ownership is very closely held among four

owners. The total share of each partner is as follows.

30% Mr. Nassar Ullah Khan Darashek

30% Mr. Ghulam Dastageer

30% Izhar Construction Co.

10% Mr. Bashir Ch.

Mr. Darashek and Mr. Ghulam Dastageer owned the initial project. In 1996, when

Izhar Construction Company reconstruct the building they bought 30% shares of the

company. In 1997, 10% shares were transferred to Mr. Bashir Chaudhary, because of

his expertise.

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9. OVERVIEW OF THE ORGANIZATION.

a) BRIEF HISTORY OF THE ORGANIZATION

It will be very interesting to know about the history of the Indus Sugar Mills. Sugar

industry is heavily affected by the political influence. In the first regime of Nawaz

Sharif Mr. Nassar-Ullah got an opportunity to construct a sugar mill in Rajan Pur.

The owners were not having any experience of such work. This inexperience results

in recruitment of poor managers and dishonest Construction Company. Due to bad

construction and impure materials just after its first season in 1993, a major part of

factory building was demolished in 1994 causing a break down of operations. The

factory did not work at that year and the management was fired too. After

reconstruction of building a new management team was hired in next season. The

management, again this time, was not competent enough and uses Mal Practices.

These practices although caused a good margin for owners but was very discouraging

for raw material suppliers. The results were very obvious. In the next season the mill

were facing a great problem of finding sugar cane. This problem became so much

severe that the factory has to close its operations and face losses. The effects went to

the next season and factory was almost closed in 1997. Management was once again

fired. In 1997 the directors took the matter very seriously. This time before hiring the

new management and especially G.M they neutrally analyze the whole industry. And

than appoint Mr. Ayaz Khan as GM. Another change, which came by, the mutual

consent of the owners, was addition of another owner with 10% shares of the

company. This new partner was Mr. Bashir Ch. (ICMA), and he got this share

without putting a single rupee in the venture.

This new man changes the whole philosophy of the organization. Previously the

owners were inexperienced and ill-educated persons but this man was competent

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enough to run the organization on a profitable path. Soon after his arrival, he changed

the whole system of operation. He analyzed the failures; he found the lope holes and

then developed the strategies to over come these problems. It was the results of his

efforts that in next season of 1998-99 the factory worked at full capacity and

generates positive cash flows. In 1999-00 the company was again in better position,

although not in profits. In this season company is also showing the best performance,

in spite of a shortage of sugarcane in the whole region. Mr. Bashir has turn around

the whole organization and now he is considered as charismatic leader through out the

organization.

b. NATURE OF THE ORGANIZATION.

Sugarcane is the fourth largest cash crop growing in Pakistan, which contributes to the

agriculture economy a crop value of over Rs.48 billion. Its share in the large-scale

industry is 18% and 1.9% in GDP. Sugar industry’s contribution to the Government

Federal excise duty is 11.2%. Average yield of sugarcane is 44 tons against the world

average of 60 tons per hectare. Pakistan’s sugar mills crushing capacity is 58 million

tons of sugarcane capable to produce 5 million tons of refined sugar and 3 million

tons of molasses. The mills still have 34% unutilized capacity.

The industry employs more than 100,000 labor force while more than 9 million

people of rural population are involved in the production of sugarcane. The existing

mills are sufficient enough to produce the country’s requirement of sugar for the next

many years.

Unfortunately, Pakistan’s sugar industry is mostly owned by political personalities

and majority of the sugar mills are set up with the help of DFIs normally trapped with

the working capital crisis.

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Loss of production of refined sugar due to excess quantity of raw cane diverted for

seed and Gur manufacturing (37% instead of 25%) works out to 482,269 tons that

could have made possible a total sugar production of 2,911,633 tons both from cane

and Beet. Under such avoidable circumstances, the country would have needed to

import only about 113,587 tons, which might result to save precious foreign exchange

of approximately $ 208.830 million. Advance planning to foresee the situation for the

previous year and control of proper utilization of cultivate sugarcane could have

easily avoided the current sugar bonanza.

The Government should take up cost studies at the growing sugarcane stage for the

purpose of fixing the support price for the growers. Cost studies for production of

refined sugar both in terms of variable cost and fixed cost of production in each sugar

mill should also be undertaken to control the retail prices.

The net amount of foreign exchange amounting to Rs.7.509 billion saved as result of

total exports of Rs.19.722 billion during the last six years from 1994 to 1999 has been

eaten away be the import of 900,000 tons during the year 1999-2000 estimated to

cost Rs.13.509 billion to the Government exchequer.

With the proper utilization of poor cane crop for the season 2000-01, the situation for

shortage of sugar may be reduced to 461,610 tons, which needs a foreign exchange of

US $ 114 million.

Since De-zoning, the incentive of sugar mills to direct resources for development of

good variety cane in its area has almost diminished because the growers who have

borrowed money from a sugar mill for development are free to take their sugarcane to

any mill irrespective of which mill advanced the loan for development. It is also one

of the causes of sickness of sugar industry. Large interest of the growers of the area

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and those associated with such project, which collapses due to non-availability of

cane, is badly affected. Closure of a sugar mill reduces GDP and increases poverty of

masses.

Balanced policy for cultivation of four major cash crops – with, cotton, rice and

sugarcane should be chalked out by the Government. An incentive should be

provided to the growers for cultivation of sugarcane on 1.150 million hectares. Indian

verity of seed, which is total de-generated and diseased affects the production yield,

should be avoided.

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 c. BUSINESS VOLUME.

Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Sugarcane Area HA. 963,100 964,500 1,056,200 1,166,000 1,009,800 950,000

Sugarcane produced 45,229,700 41,998,400 53,104,200 55,191,100 46,332,600 45,000.0,000

Yield/Ha-Tons 47 43.54 50.28 47.77 45.88 47.40

Cane Utilized by
28,151,434 27,352,918 41,062,268 42,994,911 28,982,711 32,000,000
Mills

% age of utilization 62.24 65.13 77.32 77.90 62.55 73.30

Sugar Production 2,449,598 2,378,751 3,548,953 3,530,931 2,414,746 2,670,000

Recovery %age 8.70 8.69 8.64 8.21 8.33 8.35

No. of Mills 66 68 71 73 69 69

Cane support price

21.5/21.75 24.25/24.5 35/36 35/36 35/36 35/36
Punjab, WFP, Sindh
Season’s Av. Dom.
17.86 21.46 18.75 19.63 22.85
Retail price Rs. / Kg
Av. Inter. Export
383.75 319.25 272.46 216.28 211.68
price US$/Tons
Total Sale upto 30th
2,366,481 1,980,072 3,042,165 3,170,374 2,402,090
Sep.
Beginning Stocks 1st
264,659 103,553 413,290 513,062 371,389 27,274
Oct.

Imports 3,214 681,083 110.990 10,097 462,439

Cane + Beet
2,470,034 2,393,362 3,555,228 3,541,763 2,429,364
Production

Total Available 2,737,907 3,177,998 4,079,508 4,064,922 3,263,192

Export 29,134 457,471 616,095 NIL

Consumption 2,605,220 2,764,708 3,108,975 3,077,438 3,235,918

End Stocks 103,553 413,290 513,062 371,389 27,274

The Sugar Market in Pakistan

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Pakistan is a country with a population of about 170 million inhabitants, which

includes about 6 million immigrants (3.5 million Afghan refugees, 2 million illegal

Bangladeshis, ¼ million illegal other nationalities). Sugar is consumed in each and

every beverage of Pakistan which includes soft drinks, tea, cold drinks (sherbets,

lassi), tea, kehva etc. Sugar is also used in sweetmeats, bakery products, other

confectionary items and pharmaceutical industry, etc. In short Pakistanis are a sweet

tooth nation.

The question to be asked is at what price is sugar affordable to the general public, at

what cost are the sugar millers producing the sugar per Kg, what is the international

bench mark of producing sugar per Kg, and how far is Pakistan away from it. To keep

our consumers happy and our sugar millers satisfied what kind of investment is

required to improve our processes and savings so that we can reap the benefits in the

future. The sugar industry is the second largest industry of Pakistan accounting for 8%

of the total value added in the large scale manufacturing industries and contributing

Rs 15-20 billion per annum in the shape of general sales tax (GST), federal, provincial

and local taxes. The direct employment in the sugar industry is about 120,000

managerial, skilled, semi skilled staff and in-direct employment is about 4 million

people1.

Pakistan stands at 5th position in terms of sugar cane production and 7th and 8th in

terms of sugar production and consumption. But unfortunately in terms of sugar

production per hectare stands still at a very low level of about 4 tonnes per hectare.

The sugarcane cultivation in Pakistan currently occupies 5% of the total cropped area

and accounts for 17 % of the gross value added by all crops.

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The sugar production in Pakistan follows a fluctuating trend which means that there

are some years when the sugar production meets the national demands and some

times create a shortage that results into heavy imports. The year 2005/06 was the year

when national production was closer to 2.7 tonnes against a demand of 3.9 million

tonnes. The government has to import more than 1 million tonnes of white sugar

through Trading Corporation of Pakistan (TCP) to fill the gap. Surprisingly during the

same time there were record high sugar prices observed in Pakistani market (Rs 35-40

per kg ) as the trend in the international market was higher in the history (white sugar

prices were US$ 450-480 per tonnes during 2006)2.

.The sugar production is estimated as 3.6 million metric tonnes during 2006/07

crushing season which is a 30% jump as compared to last year production of 2.7

million tonnes. This rise in production is because of higher yields and an increase in

sugarcane acreage triggered by high market prices during last season and due to

favorable weather conditions as a result of good rain fall. Total annual consumption

is estimated as 3.95 million metric tonnes during 2006/07.

In Marketing Year 2007/08 sugar consumption is forecast to increase to 4.1 MMT due

to increase in population and strong economic growth for the last three years. Total

per capita refined sugar consumption is estimated at about 25 kilograms, based on

improved domestic supplies and strong demand. Retail sugar prices will continue to

hover around Rs. 32 per kilogram, which is about 20 percent below than prevailing

prices for last year. The government would like to keep the retail prices at the

minimum possible level by timely management of imports (USDA Report April

2007).

In marketing year 2006-2007, (MY 2006/07) sugarcane production is estimated at

54.8 million metric tons (MMT), an increase of 23 percent from the previous year due

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to increases in both area and yield. Higher cane prices coupled with favorable weather

conditions and fewer pests and diseases helped achieve higher yields. Improved profit

margin for cane, compared to competing crops especially cotton, led to an increase in

cane area in the main cotton belt. Marketing Year 2007/08 sugarcane production is

forecasted at 56 MMT, an increase of 2.3 percent over the previous year due to an

expected increase in area and yield as a result of better prices and extension services

by the sugar mills. Due to overall sugar shortage in the country, growers were able to

manipulate the market to some extent and negotiated better prices for their produce.

Increased area due to price incentives, coupled with better management practices, will

determine the ultimate size of the crop for MY 2007/08. Sugar production in Pakistan

stood at 2.7 million tons as reported by 76 sugar mills in the financial year 2005-2006.

The table below shows the historic production data of the sugar.

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Sugarcane and sugar production for the past three years has fallen short of

requirements, resulting in Pakistan to become a net importer of sugar. Current water

availability patterns do not favor crops with higher water requirements, especially

sugar cane. However, despite this problem, higher prices for sugar forecast to

convince the farmers to shift some acreage from competing crops, such as cotton and

rice, to cane.

According to MINFAL data there are 77 sugar mills with sugar production capacity of

7.1 million tons, basically obtained from 1 million hectares of sugar cane crop. The

self sufficiency in sugar production has not been achieved because of fluctuating

transactional mode between the sugar millers and the sugar cane producers. Despite

increase in sugar demand substantial stocks remain with the sugar millers, whose

production price according to them remains higher than the present value of wholesale

price.

Sugar Prices:

Provincial governments in 2006/07 increased the official cane purchase price for 40

kilograms to Rs. 60 for Punjab, Rs. 65 for NWFP, and Rs.60 for Sindh [$1 = Rs. 60].

However, prices were a volatile issue between the growers and processors for much of

the season. The growers refused to sell the cane at the official price and millers in

some areas of Punjab and Sindh delayed the start of crushing season. As a result,

market prices for cane ranged from Rs. 70 to Rs. 90, depending on the region. Sources

predict sugar mills will enhance field extension activities to encourage increased

productivity in the years to come. Price of 50 Kg sugar bag fluctuated between Rs

1593 to Rs 1655. The table shows the price of a 50 Kg bag in the four major cities of

Pakistan in October 2005 & 2006.

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The next table depicts the comprehensive details of the sugar and Gur prices in

Pakistan over the last 58 years. It is important to realize that the retail prices remained

stable or increased gradually from 1949 to 1978 owing to stable production in supply

and demand accordingly. The retail prices remained stable or increased gradually

from 1949 to 1978 owing to stable supply & demand situation. However instability

started creeping in after 1980.

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 Average Retail Prices of Sugar and Gur

The sugar cane prices paid to the farmers have showed an annual growth rate of

closer to 20% from year 1995 to 2007. The sugar cane prices are mostly dependant on

the white sugar prices, but since last few years when there was a shortage of cane, the

mills raised their cane purchase prices as part of the sugar cane prices paid to the

farmers have showed an annual growth rate of closer to 20% from year 1995 to 2007.

The sugar cane prices are mostly dependant on the white sugar prices, but since last

few years when there was a shortage of cane, the mills raised their cane purchase

prices as part of the cane war competition.

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According to sugar mills survey carried out in April 2007, the sugar millers claim

production price of Rs 32/kg, while in May 2007, sugar is being retailed at Rs 30/kg.

This means that sugar industry production processes need to be upgraded; more

efficiency needs to be brought about in the production and usage of steam, along with

the need of weighing and saving of bagasse. This bagasse saved in future years could

be the fuel for the boilers working on the sugar beet processing.

The doctrine of unlimited duty free import of sugar to bring down market prices is not

a long run solution to the issue. This will leave the millers stocks as they are, blocking

their funds which are destined as interest payments to banks or payments to farmers

for the sugarcane crop already used up by the mills a few seasons ago. Because of the

sugarcane crop price going up to Rs 100/40 kg last season, this year a good volume of

crop is expected by the sugar millers. But sugar millers are of the view that the old

sugar cane zoning system of pre-1987 times needs to be re-introduced, so that

farmer’s trolleys do not keep on moving from factory to factory for a higher price.

The farmers would like to be protected by a parchi system (adant system), where they

are given a contract by the sugar millers of purchasing of sugarcane crop at a fixed

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price on harvesting 11 to 15 months from planting period. The consultants are of the

view that sugar cane farmers and sugar millers should work in harmony in a co-

operative system. In this way regular crop for regular sugar cane crushing will be

available, provided the sugar millers ensure prompt payment to the farmers. The onus

of the sugar industry is now on the policy makers to devise a long term draft solution,

where farmers are given regular contracts from sugar mills on fixed bottom line

prices, farmers are paid promptly by the industry on delivery of sugar cane. That

sugar cane is priced not by its weight, but by its sugar content % age. There should be

a minimum price for certain fixed sugar contents and above that farmers should

receive a premium price, While the sugar industry sector is given access to improve

process technology generation, where through the help of experts they can improve on

their plants and processes, with bottom line being to drop the cost of producing sugar

per ton. This will also require improvement in the sugar cane crop being cultivated

and Investment in research for better sugar yielding varieties of sugar cane crop. The

large scale improvement in the yield of sugar cane crop with better sugar recoveries

will be a right step to improve efficiency of the sugar mills.

OVER EXPANSION IN THE SUGAR INDUSTRY

The year 1995-96 was in sharp contrast with the previous years during which sugar

production was close to 3 million tonnes which dropped by a hefty 20% to 2.449

million tonnes from 2.983 million tonnes in 1994-95. That, necessity import of around

500,000 tonnes involving substantial foreign exchange outlay. The domestic

consumption is estimated at around 2.7 million tonnes.

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The magnitude of problems of the sugar industry can be gauged from the crushing

capacity utilization dropping to around 55% during 1995-96. With idle capacity at

45%, rarely could an industry break even, let alone expect a profitable run.

The political angle

Initially the sugar mills in the country were established by the business community

but during the last 8 to 10 years establishment of sugar mills has become a prerogative

of people indulging in politics directly or indirectly. They were not only able to get

the permissions to establish sugar mills but to acquire huge credits from the financial

institutions as well. The cost of projects established after the mid-eighties was not

only very high but credits were disbursed at 80:20 resulting in very high financial

cost. All these new mills have been established in prime sugarcane growing areas

where the operating mills had spent resources to educate farmers in achieving better

yields and had arranged soft-term credits for the farmers for the procurement of seed,

fertilizer and agricultural implements. With the establishment of mills by people

enjoying political clout and power, the growers were forced to sell their produce to

these mills. During the last season, industry sources said, one of the politicians

owning sugar mills was instrumental in closure of a sugar mill as it was paying higher

prices to the growers.

Crushing capacity

Expansion of daily crushing capacity and reduction in availability of sugarcane has,

over the years been responsible for persistent crisis in the industry which has been

deepening with each successive year. There has been a constant reduction in actual

sugarcane crushing.

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During 1995-95 sugarcane crushing on countrywide basis dropped by 17.7% and

sugar production decreased by 17.9% as compared to the preceding year. Sugarcane

crushing in the Punjab came down by 19.6%. The sucrose percentage also dropped

from 8.49% to 8.12% resulting in cumulative decline in sugar production by 22.3% as

compared to last year. In Sindh, sugarcane crushing fell down from 12.038 million

tonnes in the preceding year to 10.341 million tonnes. The production of sugar

declined from 1.108 million tonnes in 1994-95 to 1.008 million tonnes in the year

under review. However, there was an improvement in recovery which improved from

9.2% to 9.75%. The mills in NWFP suffered serious setback and production of sugar

in the province fell down to 65,682 tonnes only as against the preceding year's

production of 104,136 tonnes - a massive reduction by 63%.

Cost of production

The shortfall in sugarcane availability resulting in under-utilization of capacity,

coupled with regular enhancement in its support price fixed by the government, has

been factors responsible for the increase in cost of production of sugar. Since the

nature of production is seasonal and consumption continues throughout the year, the

financial cost incurred on carrying for over six months squeezes profit margins or

increases accumulated losses of the mills. Not only the government has been

increasing sugarcane support price, the growers have also started demanding prices

higher than those fixed by the government. Knowing the limited availability of

sugarcane, the growers either completely stop the supplies or curtail them to a large

extent.

Succumbing to pressure from the growers, the mills are forced to pay price for

sugarcane much higher than those fixed by the government. The situation further

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aggravates the mills' position as they are not in a position to recover even the season's

variable cost which affects repayment of loan installments and interest charges to the

financial institutions.

Factors affecting sugarcane supply

Over the years many factors have been responsible for shortfall in sugarcane supply.

They include increased consumption by the mills and failure of the growers to

increase sugarcane production. Production could be increased either by increasing the

area under sugarcane cultivation or more importantly by improving the yield per acre

substantially. A comparative analysis of sugarcane yield and recovery between India

and Pakistan prepared by the Pakistan Sugar Mills Association indicates that Pakistan

is far behind India. While in Pakistani Punjab farmers are able to get a yield of only

43 tonnes per acre, in the Indian Punjab the yield is over 63 tonnes per acre. The

average recovery is 9.39% in Indian Punjab as compared to an average recovery of

8.44% attained in the Pakistani Punjab.

Similarly, the average yield and recovery in Indian Gujrat is 89.6 tonnes per acre and

11.34% respectively as compared to 57.3 tonnes per acre and 9% recovery in Sindh.

In both the provinces, Sindh and Punjab, the sugarcane cultivation directly competes

with cotton. If the prices of cotton are better, the farmers switch over to it, or vice

versa. When the CLV attacks on cotton were common, a large number of farmers,

originally growing cotton, switched over to sugarcane cultivation. But with the

improvement in cotton prices and availability of virus resistant varieties, the farmers

have gone back to cotton cultivation.

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The area as well as production of sugarcane shrank by 5 and 4 percent respectively in

1995-96 as compared to last year.

In the past, the provincial governments used to ban production of 'gur ' during

sugarcane crushing season but lately its production has increased manifold. The

percentage of sugarcane consumed by the sugar mills in Sindh is still the highest as

compared to the other two provinces. 'gur' making has progressed without paying any

taxes and has therefore been consuming more sugarcane to the detriment of the sugar

industry. The average utilization of sugarcane on countrywide basis touched the

highest - 76.93% in 1993-94 but has gone down during the last two years. In the

Punjab the maximum utilisation was 81.87% in the same year but came down to

63.22% during 1995-96. But the consumption of sugarcane by mills is NWFP was

reduced to only 17% in 1995-96. Contrary to this, Sindh has the highest sugarcane

consumption record. The maximum consumption touched 93.85% in 1992-93 and

came down to 75.28% in 1995-96.

Myth behind massive expansion

Over the last few years most of the existing mills have enhanced their crushing

capacities 2- to 3-fold. They give two reasons for this: expansion is much cheaper as

compared to establishing new mills of equivalent size and they also want to achieve

better recovery by curtailing the number of crushing days. The recovery at the

beginning and at the tail-end of the season is low. Therefore it was considered to

restrict the crushing period to about 150 days to achieve a better rate of recovery and

reduce the variable cost of the season.

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Incidentally, the hypothesis got some proof last year. Delay in commencement of

crushing in Sindh has been instrumental in achieving a higher recovery rate. Mills in

Sindh are thinking about beginning the crushing in November rather than in October.

Liquidity crunch

The commercial banks were directed by the State Bank of Pakistan to adjust by

August 20, 1996, the balances of credit made available to the sugar industry against

sugar stocks. The action was based on information that the mills were hoarding the

stocks. Industry sources, however say that they prepare fortnightly reports pertaining

to sugar production, its lifting and stocks. Besides, the mills would never like to hoard

the stocks and their priority was to empty their godowns as quickly as possible as

carrying a huge inventory meant huge financial cost.

Existing problems

Sugar mills in Sindh pay quality premium regularly - while the mills located in the

other two provinces do not pay such premium - and paid Rs. 733 million to the

farmers in 1995-96 alone resulting in additional cost of production.

Oblivious of the difficult situation faced by the sugar industry, federal, provincial and

local levels, persistently keep hanking for more revenue. Some of the revenue

measures imposed in Sindh lately are, imposition of market committee fee, road cess,

surcharge on sugarcane cess, varying rates of octroi, export tax and rawangi mahsool.

Although the Sindh High Court declared collection of rawangi mahsool

unconstitutional, bad in law and without authority, and the Supreme Court also

dismissed the appeal, yet the district councils recover this tax by a novel procedure.

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New deterrents

The central excise division of the Central Board of Revenue vide SRO 329(I)96 dated

May 30, 1996 curtailed the period of sugar storage, without payment of duty, to six

months from the date of production. However, the collectorate has been given

discretion to extend the period.

The custom & central excise division of the CBR during June 1996 directed the sugar

industry to manage clearance of sugar on the basis of 'first-in-first-out'. According to

the Association sources, stacking of sugar bags and clearance strictly on the

prescribed lines is not manageable and practical. The instructions seem to have been

issued by error of judgment and common sense. It looks as if the person who has

issued the directive has never visited a sugar mill and does not understand its

operation.

Structure of sugar industry in the country

While sugar production is primarily confined to two provinces, Sindh and Punjab, and

a small quantity in the NWFP, the product is consumed in all the four provinces and

Azad Jammu and Kashmir. Every year a substantial quantity is smuggled to Iran and

Afghanistan and even goes as far as the newly- liberated Central Asian states.

Traditionally, Sindh has always had surplus production and fed Balochistan, lower

Punjab and at times supplies were made to the NWFP, upper Punjab and Azad

Kashmir. However, over the years Punjab has attained self-sufficiency. Since the price

of sugar is more or less uniform throughout the country, higher cost of freight

incurred on dispatches to far-flung areas squeezes the profit margins of mills located

in Sindh.

- 26 -
Imported sugar also enters Pakistan via Karachi, Sindh and since most of the quantity

is sold in the wholesale markets in Karachi, the prices remain subdued in the

province.

Although a number of new mills with large capacities have been established in the

Punjab the fact remains that cultivation of sugarcane and production of sugar in the

province involves higher costs. The yield per acre and recovery are also low. It is

mainly because the climatic conditions are not conducive for cultivation of sugarcane

in the province. The climate in Punjab is dry and the average temperature is high

which reduces the moisture content in the standing crop.

Sugarcane needs high temperature and humid atmosphere. The conditions prevailing

in the lower Sindh are most conducive and therefore the yield per acre and average

sugar recovery percentage is the highest in the province.

The industry experts and agriculturists are strongly of the view that shift of sugar

production from Sindh to Punjab is one of the major reasons for increase in its cost of

production in the country.

Key players

The sugar mills in Punjab which produced over 60,000 tonnes of sugar in 1995-96

included the names of Brothers, Waqas, Shakarganj, Tandlianwal and Shahtaj. Waqas

crushed the highest quaintly of sugarcane and also produced the highest quantity of

sugar.

- 27 -
In Sindh, Dewan crushed the highest quantity of sugarcane and also produced the

largest quantity of sugar exceeding 100,000 tonnes. The other mills which produced

over 50,000 tonnes were Bawany, Faran, Habib, Shahmurad and Sindh Aabadgar.

Dewan Sugar Mills started sugarcane crushing on October 18 and ended April 14

during the last season. By crushing 983,489 tonnes sugarcane during the period with

an average recovery of 10.15% it produced 100,008 tonnes of sugar. In the half-yearly

report the directors' review expressed on the increase of sugarcane prices which

touched new heights as most of the mills entered into an open warfare for

procurement of sugarcane. Dewan has been declaring modest cash dividend in the

past in spite of persistent increase in the procurement prices of sugarcane. The mills

located in prime sugarcane growing area of Sindh were established in 1987.

Habib Sugar Mills established in Nawabshah in 1963 has not only tripled its crushing

capacity using in-house expertise but is among the few sugar mills which have been

declaring handsome dividends in the past. During 143 days of crushing during 1995-

96 season it produced over 60,000 tonnes of sugar with an average recovery of 9.2%.

It also produces industrial alcohol. The modification in the distillery has helped to

streamline its operating efficiency. Shahtaj Sugar Mills worked for 157 days during

the last season and achieved the highest level of crushing and sugar production since

the unit was established. According to directors' report the company could have

crushed larger quantity had there been no shortage of sugarcane. The unit is located in

Punjab and also suffered from shortage of sugarcane and increase in sugarcane

support price.

Mirpurkhas Sugar Mills also suffered from the shortage of sugarcane and the number

of days it worked was reduced to 157 as against 178 days during the last season. The

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company exported 14,600 tonnes of sugar from last year production and earned over

half a million dollars. Noon Sugar Mills produced lesser quantity of sugar mainly due

to limited availability of sugarcane and disruption of supplies for two weeks. The

company supplied 59,000 bags of 50 kg each to the government for sale through

utility stores during the last season.

Import of sugar

Import of sugar is a short-term measure to ensure availability and stabilize its price in

the domestic market. However, the recent experiment proved a futile effort. In spite of

import of sugar, the government failed in arresting the upward trend of sugar prices.

The industry experts have a valid point that increase in support price and quality

premium have failed in increasing yield per acre and recovery percentage but the cost

of sugarcane per tonnes has been increasing over the years pushing up the cost of

production of sugar. Therefore, the farmers should improve yield per acre or the

industry would not be able to sustain further losses.

Measures to improve profitability

Since the industry has expanded its capacity to the present level - producing nearly

5.5 million tonnes of sugar per annum - the first suggested step is to ban the

establishment of new units and expansion of the existing units till such time as almost

all the mills achieve 90% capacity utilization. Since it is not possible to increase area

under sugarcane cultivation the suggested second step is to undertake efforts to

develop new varieties offering higher yield and recovery. This will result in higher

sugarcane production and better returns to the growers without increasing support

prices, improved capacity utilization by the mills, larger sugar production, reduction

- 29 -
in cost of production per kilogram of sugar, more revenue for the government, stable

prices for the consumers and better dividend to the shareholders of public limited

companies.

Performance of the listed companies

Although more than 40 companies are listed under 'sugar and allied' sector at the

Karachi Stock Exchange with a total paid-up capital of over 4.7 billion rupees; barring

only a few, all are sugar mills. Shares of most of the companies are quoted below par

and only a few were able to declare cash dividend. The list of companies declaring

regular dividend comprise Dewan, Mirpurkhas, Noon, Shahtaj and Thal industries.

According to research analysts working for securities analysis companies, the

negative fundamentals for the industry prevailing for nearly five years had kept the

investors away from this second largest agro-based industry. Individual, institutional,

local, mutual funds and foreign fund managers have neither shown interest nor are

interested in investing in scrips of sugar mills in general. In the past, though this

industry has been distributing handsome dividends.

d. PRODUCT LINES OF THE ORGANIZATION.

BY-PRODUCTS

The following are the major by-products of the sugar production process:

Bagasse: The remnant of the cane fiber, bagasse constitutes about 30% of the total

Sugarcane processed and contains approximately 50% moisture. The bagasse is used

as fuel in the mill, meeting more than 90% of the fuel requirements for boilers.

Bagasse can also be used for the production of pulp and paper.

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Mud or filter cake: Solid precipitates collect in vacuum and press filters after

carbonation and clarification processes. The amount generated is about three per cent

of cane from processes using sulphitation and about 7 per cent from processes using

carbonation. Mud from the sulphitation process is mainly used as a fertilizer whereas

the disposal of carbonation press mud can be a problem. It is often used to fill low-

lying land. Another potentially recoverable by-product of the sulphitation process is

sugar cane wax, comprising 8-10% of the sulphitation mud (UN ESCAP, 1982).

Molasses: In Pakistan, around 150 to 180 000 tonnes per annum of molasses will be

produced. Several sugar mills running a distillery for industrial ethyl alcohol. Nearly

half of the production is going to export. Beet molasses can be used in the same way

for fermentation and also for export. For more information about carbohydrate content

Cane molasses is the main by-product of sugar production. In the past, large quantities

of molasses were exported. In 2004/05, Pakistan exported 1.5 million tons of

molasses, valued at US $71.6 million. Summary of export of molasses is given below.

- 31 -
Since 2005/06, molasses has been used to produce ethanol due to its strong demand in

the international market. Export of ethanol from 2003 to 2005 has been shown below.

MOLASSES PRODUCTION IN PAKISTAN

FROM CANE, RAW & BEET

(IN TONNES)

YEAR PAKISTAN PUNJAB SINDH NWFP

1990-91 1,119,978 61 1 ,033 473,432 35,513
1991-92 1,168,158 545,125 581,683 41 ,350
1992-93 1,330,419 632,055 652,789 45,575
1993-94 1 ,694,852 972,827 676,790 45,235
1994-95 1 ,650,952 1,010,890 592,067 47,994
1995-96 1 ,361 ,471 821,298 503,692 36,481
1996-97 1,319,860 798,448 482,636 32,661
1997-98 1 ,978,801 1 ,237,940 684,823 56,038
1998-99 2,113,595 1 ,276,391 760,533 76,670
1999-00 1 ,397,378 800,536 534,003 62,838
2000-01 1,501,501 901 ,732 550,605 40,480
2001-02 1,822,959 1 ,224,905 522,939 75,115
2002-03 2,048,117 1 ,304,284 656,520 87,313

e. MAJOR COMPETITORS OF THE MILLS.

1- Hamza Sugar Mills Khanpur

2- JDW Sugar Mills Jamal Din Wali
3- Hajra Rehman Sugar Mills Muzaffargarh

- 32 -
10. ORGANIZATIONAL STRUCTURE.

a. Organizational Hierarchy chart

General
Manager

DY. General
Manager General
Admin Finance
Technical Manager
Manager Manager
Cane

Chief
Technical Engineer Production DY. Admin Chief DY. Cane
Manager Electrical Manager Manager Accountant Manager

Chief Sr.
Engineer Engineer Chief
Mechanical Electrical Chemists

Management Hierarchy

The hierarchical structure of the company is Functional. The Board of directors heads

the organization, which is constituted by the owners of the mill. The functional head

of the company is General Manager. There are six main Departments of the mill and

six Managers, who are directly working under General Manager, head these

Departments. The hierarchy is more liked bureaucratic with six layers on average in

each department.

- 33 -
b. Number of employees

Total numbers of employees are 483.

c. Main Offices

Main Offices of the Indus Sugar Mills are,

i) Cane

ii) Accounts

iii) Admin

iv) Electrical

v) Chemical

vi) Mechanical

d. Comments on the organizational structure

Indus Sugar Mills has a very well define Organizational Structure. Each

Department has been supervised by the Manager of its own Department. Each

Manager of the Department then works under the jurisdiction of the worthy General

Manager of the Mill. Each Department has its own working staff. All the working

staff is well educated and hard working. They all help the trainee when and wherever

necessary.

11. PLAN OF INTERNSHIP PROGRAM

a. A brief introduction of the branch where you did your internship

I did my Internship in Accounts Department. Accounts Department controls all

accounting activities of the Indus Sugar Mills. They install software for accounting

system. They entered only figure data. They cannot use manual system. This

Department records the different accounts, payment, salaries, of employees, A/R, A/P

- 34 -
Revenue from sales cost on the sugar and calculates the profit of the organization. It

also maintain the finance that is required by mill to fulfill the requirement of the

different departments, the Finance Manager is controller of this department.

b. Starting and ending dates of your internship

Starting Date of my Internship is 06-09-2008 and ending date is 11-10-2008

c. The departments in which you got training and duration of your training

I got training in Accounts Department and Admin Department and the duration

of my training is 06 weeks.

12. TRAINING PROGRAM

a. Introduction of all the departments

i Cane department
Cane department is that department who purchase the sugar can from farmer.

Who provide the seeds fertilizer to the farmer who establish there purchasing center in

different places, who seek the field of sugar cane and give suggestion to the farmer.

After purchasing cane the transportation expenses beard by this department & cane is

entered in milling area. This department also responsible for completing the daily

requirement of crashing process. The fresh cane is purchased because the predictive of

the fresh cane is more than expired cane.

There are different methods for purchasing the sugar cane. By issuing

passbooks or on the spot. The payment of sugar cane also the responsibility. If they

payment is less than 25000 than paid in cash other wise they issue chaque.

- 35 -
ii. Accounting department

Accounts Department controls all accounting activities of the Indus Sugar

Mills. They install software for accounting system. They entered only figure data.

They cannot use manual system. This Department records the different accounts,

payment, salaries, of employees, A/R, A/P Revenue from sales cost on the sugar and

calculates the profit of the organization. It also maintain the finance that is required by

mill to fulfill the requirement of the different departments, the Finance Manager is

controller of this department.

iii. Admin Department

It is another department who perform some administrative activities to overall

control of the sugar mills. They introduced the new working methods. These methods

implemented in the production process to increase the production and decrease the per

unit cost. This department controls the other department and tries to increase the

efficiency of workers.

This department containing the Executive, Directors etc who guide the other

employees and make plans for future and using the information technology in

company. They have a authority to adept the integrated information system in

business.

iv. Production Department

Production department is that department who manage the production of sugar

in whole mills. All process of production run under this department and perform their

activities with better ways. The main aim of this department is to maximize the

production and decrease the per unit cost.

- 36 -
v. Cost Department
In cost department they maintain the overall cost of the product. But they use

the process cost system in production of sugar. Process cost system the focal points in

accumulating manufacturing costs are the individual production departments.

b. Detailed description of the department you worked

Accounts Department controls all accounting activities of the Indus Sugar

Mills. They install software for accounting system. They entered only figure data.

They cannot use manual system. This Department records the different accounts,

payment, salaries, of employees, A/R, A/P Revenue from sales cost on the sugar and

calculates the profit of the organization. It also maintain the finance that is required by

mill to fulfill the requirement of the different departments, the Finance Manager is

controller of this department.

13. STRUCTURE OF THE FINANCE DEPARTMENT

a. Department hierarchy
The hierarchical structure of the company is Functional. The Board of

directors heads the organization, which is constituted by the owners of the mill. The

functional head of the company is General Manager. There are five main departments

of the mill and five managers, who are directly working under General Manager, head

these departments. The hierarchy is more liked bureaucratic with five layers on

average in each department.

b. Number of employees working in the Finance department

Total Number of employees in Accounts Department are 06 i.e.

i Shabbir Ahmad
Finance Manager

- 37 -
ii Abid Hussain
Chief Accountant
iii Fazal Hussain
Accountant
iv Mehbood Farid
Office Assistant
v Nazik Hussain
Clerk

c. Accounts operations
Accounts Department performs following functions,

i Financing
The mills provide the finance to the former through some banks like MCB

Allied bank. They provided the finance to the former for some specific purpose just

like,

 For purchase of fertilizers.

 For purchase of seeds.
 For purchase of fuel.

ii Payments
The payment procedure is very simple to facilitate the formers. They make

their payment in term of cash if the amount is small, but if the amount is large than

they done the payment through bank within three days.

iii Transportation Expenses

The company provides transportation expenses to the formers, 10 paisa per

Km at per 40 Kg, subject to distance of 40 Km, this will also increase the interest of

the former.

iv Cane Purchasing Center

The company opens their purchasing center near the formers field to facilitate

the formers that is why the formers can easily provide the sugar canes to the centers.

- 38 -
v. Bonus
The company management gives the bonus to their permanent employees in

shape of cash. The bonus is given to motivate and to satisfy the employees. But the

company cannot pay the bonus to the employees who work as temporary bases

14. FUNCTIONS OF THE MARKETING DEPARTMENT

a. Marketing & Prices Strategies.

Sugar prices continued depressed well into the midseason of 1999-2000: at the

end of crushing, as soon as necessity of import of sugar due to shortfall was known,

the prices of sugar started improving. During the year’2000 for the first time in four

years retail price of sugar crossed Rs.22/- per kg. Mill gate prices are generally Rs.3/-

to Rs.4/- below the market retail price. Though process of export was completed in

May’99 yet sugar prices remained low for a period of over a year, till the glut like

conditions ended.

Escalation in the production cost of sugar has been due to high cost of sugarcane with

low recovery, high taxation and high interest rates charged by the Banks and DFls.

With sugarcane support price still enforced no similar mechanism exists for the sugar.

Without adopting a sound strategy, the industry will continue to suffer. The production

cost of sugar remained between Rs.20/- to Rs.22/- depending on different factors.

Table presented below shows that the sugar price could not respond to the increase in

the sugarcane price for a period of three years, due to domestic surplus production and

similar crash in the international sugar trade price due to global surplus.

- 39 -
 SUGARCANE SUPPORT PRICES MILL GATE DELIVERY

YEAR PUNJAB SINDH N.W.F.P QUALITY

PREMIUM

1990-91 15.25 15.75 15.25 0.19

1991-92 16.75 17.00 16.75 0.22

1992-93 17.50 17.75 17.50 0.22

1993-94 18.00 18.25 18.00 0.22

1994-95 20.50 20.75 20.50 0.27

1995-96 21.50 21.75 21.50 0.27

1 996-97 24.25 24.50 24.25 0.27

1997-98 35.00 36.00 35.00 0.32

1998-99 35.00 36.00 35.00 0.50

1999-00 35.00 36.00 35.00 0.50

2000-01 35.00 36.00 35.00 0.50

2001-02 42.00 43.00 42.00 0.50 (Indicative price)

2002-03 40.00 43.00 40.00

b. Production planning, development & management

- 40 -
Sugar is mainly extracted from sugar cane and beet. The majority of sugar in Pakistan

is produced by crushing and processing sugar cane, with only three mills in NWFP

producing sugar from beet.3 In 2003-04, 1,074,700 hectares of agricultural land was

used to grow sugar cane yielding 53,800 tones, with an average yield of 49.7 tones per

hectare of which 81.19 % was utilized by sugar mills (PSMA, 2004, 27). The actual

sucrose content of sugar cane and beet varies with location and permanent harvesting

conditions as well as yearly variable conditions such as water availability. Sugar

recovery depends on both the processing technology and composition of the raw

materials. Sucrose typically comprises 8 – 15 percent of the juice first extracted from

the sugar cane (see Appendix A for a breakdown of sugar cane contents).

The sugar cane is harvested by cutting the stem, typically by hand in Pakistan and

most parts of the world, and the roots are left for re-growth. There is a high priority on

immediate delivery of the cane to the mill and to begin processing it as soon as

possible after harvesting because the sucrose content deteriorates rapidly via enzymic,

chemical, and microbial processes. Dependent on the harvest season, sugar mills are

in operation only from around early November to April or May. Sugarcane processing

is aimed at isolating from the cane juice, which initially contains soil, fibers, and other

non-sugar components, the purest form of sucrose possible with minimum wastage

through destruction of the sucrose. The process is initiated with unloading, washing,

and cutting the sugar cane, after which the desired end-product, refined white sugar, is

produced in a two step procedure – in the first stage, juice is extracted from the sugar

cane and converted to raw sugar; in the second stage, the raw sugar is refined to

produce white sugar.

- 41 -
With some minor variations, the process of cane juice extraction and raw sugar

production is relatively similar across the industry. A series of roller mils are used to

crush and grind the cane. The residual fiber, called bagasse, is used as fuel for the

boilers. The juice from the mill is generally clarified with heat or slaked lime, a

process called “defecation”, which precipitates much of the impurities in the form of

an insoluble mass termed “Mud” which is separated via gravity or centrifuge and then

filtered. Polyelectrolyte may also be added before filtration to further coagulate

suspended particles.

The clarified juice is passed on to the evaporators where it is first concentrated

through steam evaporation and then boiled in large vacuum pans until the syrup is

- 42 -
saturated enough for crystallization to begin. The crystallization is often initiated with

a sprinkling of sugar dust. After crystallization, the mixture of sugar crystals and

mother liquor is centrifuged and the separated crystals are washed with water. The

centrifuged mother liquor or “molasses” is repeatedly reintroduced to the evaporator

stage to remove the maximum sugar content possible until the molasses has been

reduced to a solution of much lower purity which becomes one of the by-products,

used mainly as cattle food or for ethanol production in distilleries. At this point, the

raw sugar is either cooled and packaged or sent directly to the refinery in an

integrated facility.

CHEMICALS USED

- 43 -
While the desired product, sucrose, is fully formed and present in the sugar cane or

beet, the process of extracting the purest and most refined form of the sucrose from

amongst the other components of the raw material, involves the use of a number of

chemicals which eventually find their way into the wastewater stream. The following

are the main chemicals used:

Calcium Hydroxide (milk of lime, Ca(OH)2): Ca(OH)2, generated by sugar mills

through conversion of calcium carbonate to calcium oxide or directly from calcium

oxide, is used in the clarification step, a process termed as “Defecation”, to coagulate

colloidal matter and precipitate impurities into an insoluble mass which can be

separated.

Carbon Dioxide (CO2): In processes that employ carbonation for clarification of the

raw sugar melt, CO2 from the wet scrubbing unit of the boiler stacks or from

calcinations of limestone in the lime kiln, is bubbled through the liquid to precipitate

impurities.

Phosphoric Acid (H3PO4): In processes that employ phosphitation for clarification,

phosphoric acid is added to the sugar mixture to separate impurities. It may also be

added before liming to sugarcane juices deficient in phosphorous pent oxide (P2O5)

to hasten the settling of precipitated impurities.

Sulphur Dioxide (SO2): In processes that amply sulphitation for decolourisation, the

sugar melt is treated with SO2 obtained through burning sulfur rolls in a kiln.

Polyelectrolyte: Polyelectrolyte are added to coagulate impurities precipitated during

defecation and clarification.

Polyacrylamide flocculent: Polyacrylamide flocculent refers to synthetic organic

polymers used in sugar processing to separate impurities in the form of a flock that

can be skimmed off the surface of the cane juice.

- 44 -
Caustic Soda (NaOH), Soda Ash (Na2CO3), and Hydrochloric Acid (HCl):

Accumulated scale from multiple effect evaporators and vacuum pans is removed by

boiling a cleaning solution containing 30-35% caustic soda and 6-8% soda ash in the

heaters, followed by rinsing with a solution containing 3.5% hydrochloric acid and

finishing off with a water rinse.

Lead Sub Acetate: Lead Sub Acetate is a toxic chemical used to analyze sugar

content.

d. Distribution strategy

Indus Sugar Mills

Brokers

Wholesalers

Retailers

Final Consumers

e. Promotional strategy

At this time when industry is fully mature, and the competition in terms of

access to raw material is very high the companies usually face the problems of slow

- 45 -
demand growth, emphasize on cost and services, topping out and loss of profitability.

The Indus Sugar Mills is also facing the same problems. Although it has tackled the

major problems very well but still there is some room of improvement in its existing

strategy.

15. CRITICAL ANALYSIS

a. Success & failure of different products of the organization in the market

along with reasons.
Success

The company has got an advantage of access to the sources of raw material.

In fact the owners of the company are big landlords. When they observe the problem

of the sugarcane supply they plan to provide sugarcane to factory through their own

lands. This plan was successfully implemented and at the moment they are fulfilling

almost 30% of total requirements through their own sources. This type of

arrangement for uninterrupted supply of sugarcane is seldom available to any other

company.

Failure

Usually in the mills workers get some perks along with their salaries. The

company can afford such kind of expenses only when it is profitable. Indus Sugar

Mills is incurring losses right from its inception. To reduce these losses company

tightens the fringe benefit policy. Not only did these workers also not get any bonus

for last many years. Such kind of activities demoralized the employees and with less

motivational levels their efficiency decreases.

b. Major competitors of the organization

1- Hamza Sugar Mills Khanpur

- 46 -
 2- JDW Sugar Mills Jamal Din Wali
3- Hajra Rehman Sugar Mills Muzaffargarh

c. Future prospects of the organization

Sugar production this year is estimated to be much less than the previous year,

the main reason being the drought conditions being faced by the country, which

has resulted in less acreage of cultivated sugarcane and low yield. Resultantly

due to market forces the mills are receiving a better price for its sugar but

simultaneously higher price of sugarcane is swallowing the profit margin.

In spite of the carry forward stocks of TCP, the Government is planning to

allow import of raw sugar with withdrawal of excise duty thereon to overcome the

expected shortage of sugar. It is hoped that myopic decisions are not made to

unrealistically cane procurement cost.

Since the growers are getting a good price for the cane it is expected that the

sowing would be better for the next season. Your management is confident of

meeting future challenges and avail fresh opportunities.

16. SWOT ANALYSIS OF ORGANIZATION

Financial Analysis of Indus Sugar Mills

Through the analysis of last five years financial statements some facts are also

generated which will throw light on the financial aspects of the company. From this

data certain ratios are calculated and these ratios are compared with the industry

averages. Because the figures will be just meaningless without any interpretation so

only the trends are given in following section.

Liquidity Ratios

- 47 -
 The liquidity ratios of the company are good as compare to the industry

average. There is a big difference between current ratio and Acid Test ratio, which is

due to the low inventory levels. The ratios show that the company is able to fulfill its

current liabilities very easily with its current assets. Low level of inventory is due to

the perishable nature of the raw material.

Turnover Ratios

Turn over ratios is also showing better than the industry norms. This is due to

the better relationships with the suppliers, a better-automated system and strict

recovery controls.

Debt to equity ratio

This ratio is amazingly high in the company. The industry average is about

30:70, while the Indus Sugar Mills has this about 16:84. This shows a high

dependence of the company on debts. And now the company is almost unable to

generate any long-term debt from the market.

Profitability ratios

Here again the company is showing very poor performance. Although the

ratios are not very different from the industry as a whole but due to the continuous

losses in the previous years the ratios are turned to be very discouraging. Due to the

profits earned by the company in last year it can be expected from the company to get

out of the problem in near future.

i Strengths of Indus Sugar Mills

Professional leadership

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 Usually in such kind of traditional organizations leadership is deficient.

People are usually guided through specified rules and regulations. Also the

professionalism is lacking in most of the cases. But Indus Sugar Mills is clearly

different in this aspect from other organizations. After taking charge of many

responsibilities Mr. Bashir Ch. has worked very hard for the success of the mill. Due

to his professional abilities and leadership qualities he has also got many of his

objectives. And now this is the result of his efforts that the company is showing very

good performance and operating on professional basis.

Skilled labor

In most of the factories skilled and semi skilled labor along with unskilled

labor is hired from outside. There is always a risk associated with them that whether

they work properly or not. Indus Sugar Mills has its own training department. In this

department people are hired and trained for a period of three years. After that period

they have been given an opportunity to stay with organization or to go to some other

factory. Most of the time the workers opt to stay and in this way company gets a good

trained, skilled and loyal employee.

Sophisticated machinery

There is no hard and fast rules in sugar industry regarding the technology or

process implied. Even in some factories fifty years old machinery is also used. Such

type of machinery effect the recovery rate. Indus Sugar Mills has the latest machinery

and plant. As it is one of the last sugar mills build in Pakistan, so it is using the most

modern technology available in Pakistan. This machinery also gives an edge to the

organization over its competitors.

- 49 -
 ISO 9000 Certification

One of the objectives of the company is to prepare itself serve the foreign

markets by exporting sugar. As a proactive step the company has gone for ISO 9000

certification. The process is on its way and the company will get this certificate at the

end of year 2001. In sugar industry very few firms has got this certificate, so it’s the

competitive edge the company will be having on other players in foreign markets.

Backward linkages

Generically the company has got an advantage of access to the sources of raw

material. In fact the owners of the company are big landlords. When they observe the

problem of the sugarcane supply they plan to provide sugarcane to factory through

their own lands. This plan was successfully implemented and at the moment they are

fulfilling almost 30% of total requirements through their own sources. This type of

arrangement for uninterrupted supply of sugarcane is seldom available to any other

company.

ii Weaknesses

Less motivated workers

Usually in the mills workers get some perks along with their salaries. The

company can afford such kind of expenses only when it is profitable. Indus Sugar

Mills is incurring losses right from its inception. To reduce these losses company

tightens the fringe benefit policy. Not only did these workers also not get any bonus

for last many years. Such kind of activities demoralized the employees and with less

motivational levels their efficiency decreases.

Transportation cost

- 50 -
 The mill is located at such a place where the sugarcane is not cultivated

widely. To ensure the 100% capacity utilization of mill the company purchases

sugarcane from distant areas. When this cane is transported its cost become high,

which results in high production costs. Because they can not transfer this to the

consumer so they have to sacrifice their margins.

Financial expenses

The company is highly dependent upon debts. Against these debts the

company is paying a heavy amount every year as interest payment. The company has

also defaulted, once, against its debentures to different DFIs. Due to this default and

high dependence the company is considered as risky company. That is why to cover

this risk whenever any institute extend any loan to them it carries a high interest rate

as comparing to others.

iii Opportunities

Generic opportunities

The sugar has so many opportunities due to its product nature. It is a necessity

and no one can avoid it. In Pakistan the consumption rate of sugar is highest in the

world, 22-Kilogram per person per year. And as the population growth rate is also

very high so the company has an opportunity to meet the demand of local market.

Also the product has no substitute, so people have to buy it in any case. These are the

natural opportunities, which the company is enjoying.

Diversification

The company has a very good opportunity to go for diversification. It can go

for some distillery to refine the molasses to make ethyl alcohol or can go for making

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Chipboard or for any paper mill. The inputs of these products will be available in the

shape of by-products of sugar production.

De-Zoning

This policy of government put a very favorable impact on the company.

Previously it has to arrange the sugarcane from the near vicinity, while the sugarcane

is not easily available in proximity. In this way the company was suffering from

sugarcane shortage. But due to de-zoning now the mill can arrange sugarcane from

any part of the country.

Export market

As it is also in the objectives of the company to export its product, so it can do

so with a little effort. Although the cost of production in Pakistan is very high as

compare to the competitors due to the high price of sugarcane. But still company can

make its mark in Central Asian States as well as to Iran, India and Afghanistan.

iv Threats

Low production of sugarcane

The sugarcane is not produced sufficiently in the country. It is due to the low

productivity of the varieties and due to the less area cultivation. Due to this low

production the mill faces a shortage of sugarcane which is always a problem for the

company.

Changing trends

Sugarcane is a crop, which needs more water and water for the whole year.

Due to the water crisis in Pakistan, now the trend of the growers is changing towards

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those crops, which needs less water. This thing can also cause a shortage of

sugarcane.

Privatization of sick units

Although the government has provided the protection to this sector by

imposing a ban on the establishment of new sugar plant but due to the new policy of

privatization of sick units the scenario is bit changed. The government has privatized

different industrial units including sugar mills, which will increase the competition in

the industry.

Decrease in consumption

Due to the increase in awareness level of the people the consumption rate is

decreased. The reduction in disposable income is also a cause of decrease

consumption of sugar. The high rate of diabetes in the country is another cause which

restricts the people to use sugar. Because of all these factors the consumption rate of

sugar is decreasing in Pakistan. Which is a source of continuous threat for the

company?

17. CONCLUSION & RECOMMENDATIONS.

From the findings I have a general interpretation is that most important hurdle

involved in the consumer satisfaction about sugar is the price and the quality. To solve

them I give certain suggestions. To find out problem with out providing solution is

nothing, so here are few suggestions being provided.

I found that Indus Sugar Mills sugar users are completely satisfied with their quality

and price. So the following recommendations should be followed if the Company

wants to increase its market share.

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  Sugar should be made more economical that it can become affordable to all

users of Sugar.

 Quality and quantity should be improved.

 Availability of the Sugar should be ensured.

 T.V advertisement should be more appealing and attractive.

 Samples of Sugar should be distributed in those areas in which people are not

using this Sugar. Then response collected from them and relative steps should

be taken. In order to capture more market share.

 We should leave that consumer who are using Sugar are completely satisfied.

Focus on that part which is not satisfied with their current Sugar and not using

Indus Sugar Mills Sugar.

 To increase the brand loyalty, quality should be further improved.

RECOMMENDATIONS FOR SUGAR INDUSTRY.

The first point of focus, not least because of the relative immediacy of results and

minimal financial investment, should be in-plant pollution prevention measures. As an

added incentive, such measures often generate substantial financial savings in

addition to the environmental benefits, as demonstrated by the example of Sialkot

tanneries.

“Water Pollution Minimization Options”, provides a detailed treatment of various

options available to streamline in-plant operations to minimize the volume and

pollutant-concentration of water discharged. The main modes of intervention include

water recycling, process modifications to decrease wastewater production, and

improved in-house management such as water use monitoring and equipment

maintenance to optimize wastewater reduction from the existing production processes.

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The various measures discussed have the potential to increase efficiency, decrease

cost of operations and reduce wastewater volume and pollutant load.

Nonetheless, end-of-pipe treatment, though it will require a large capital investment

and substantial maintenance costs will eventually have to be adopted to bring the

sugar industry in compliance with NEQS. If the sugar mills are vigilant with the in

plant pollution prevention measures, the wastewater can be substantially reduced

rendering the requisite end-of-pipe treatment much less costlier than the scale of

treatment that would be needed to mitigate current effluent levels. The financial

burden per company can also be reduced if any clustered mills pool resources to

create and maintain a collective wastewater treatment system. Moreover, the Kasur

Tannery Pollution Control demonstration project has shown that the financial burden

can be moderated with savings through other means such as the marketability of land

reclaimed from standing wastewater. The sugar industry also has to keep in mind that

eventually pollution charge will become a financial liability that will only be averted

through complying with NEQS limits. From the various options available, sequences

of aerobic and anaerobic lagoons or a combination of UASB reactor and activated

sludge system appear to be the most thorough and affordable options. To enhance the

identification and implementation of appropriate control measures, industry should

consider carrying out periodic “waste audits”, particularly for water use, to identify

the level of waste discharge.

RECOMMENDATIONS FOR GOVERNMENT.

Government can encourage compliance with environmental standards by

fostering favorable regulatory and financial conditions. It already has at its disposal

broad legislative authority under PEPA 97 and potent implementation tools in the

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form of the proposed Self Monitoring and Reporting/SMART Program for Industry

and pollution charge system to which industry has itself contributed and acquiesced.

The fruitfulness of these initiatives largely depends on government to actualize the

launch of these tools and to ensure consistency in their enforcement.

Nevertheless, inducements to comply cannot succeed if businesses simply do not have

the necessary resources. Government can facilitate industry’s move to environmental

stewardship by garnering resources to finance such initiatives in the form of subsidies

for environmental technology, soft loans, and technology transfer assistance aimed at

building capacity for environmental protection in developing economies. It can try to

explore options available under capacity building provisions of international trade

agreements, for instance, and leverage funding for demonstration projects similar to

the Cleaner Production Center assisting the Sialkot tanneries and treatment plant

project for Kasur tanneries.

Government agencies can also facilitate domestic initiatives and cooperation by

providing forums and opportunities for stakeholders to come together and tackle

environmental issues in collaborative processes, such as the one effectively executed

for the determination of the pollution charge system and self-monitoring and reporting

/SMART program (Khwaja, 2001). In reference to the sugar industry, a multiparty

initiative government could promote is examining the potential for a joint wastewater

treatment system.

Vision of the company

By the arrival of new director everything in the organization has been changed

and revived. All the vision, Mission, and objectives have been revised and

reformulated. This reformulated framework is strictly followed and bringing fruitful

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results for the organization. According to the new management the vision of the

company is:

“To be a model of management and operational activities in sugar industry”

Although at this very moment it is difficult to understand that how they will

accomplish it. But there efforts will be analyzed for this purpose in next section. A

good thing with this vision is that previously it was widely believed by the workers

that the firm stands only for profits and it does not care about anything else. But this

new vision really shared by all the employees and it has changed there mental model.

Mission of Indus Sugar Mills

Previously the only mission of the organization was to run the factory in profitable

manner. But with the change of vision, the mission is also positively affected. Now

the company is thinking on these lines:

"By the application of sophisticated machinery and better planning, produce a high

quality product, consistently, for local and foreign markets. As well as building

good relationship with employees, suppliers and distributors in order to increase

productivity, profit margins and to use this resource as a shield against

competition".

Objectives of Indus Sugar Mills

Although the vision and mission of the company is very broad, but they are supported

by the goals and objectives set by the company. Currently it looks difficult to

accomplish all these goals but the management has set its direction and sooner or later

it will be getting its objectives.

The objectives of the company are:

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a) To bring the company out of financial crisis, by decreasing its debt dependency.

b) Enhancing to utilize the full potential of the mill by arranging raw material,

modernizing the process, and the workers moral.

c) To build up the confidence of growers and managing and maintain long term good

relationship with them, with fair honest and mutually profitable dealings.

d) To find out the opportunities in foreign countries for export of sugar.

e) To create a working environment which motivates, recognizes and recognizes and

rewards achievements at all levels of the organization.

f) To be a contributing corporate citizen for the betterment of society, and to exhibit

a socially responsible behavior.

Analysis of vision, mission and objectives

The vision of the company is very broad and deals with both the functional and

managerial aspects. The best thing in it is its practicability which causes an

organization wide acceptance of this vision. The mission is also not very different

from the vision rather its an explanation of company vision. This vision and mission

is not stated anywhere in the organization rather they are inferred and extracted during

the case study.

The objectives are very clear and to much extent are self explanatory in nature. These

objectives are being formulated not only according to the current situation but also to

keep the future and coming opportunities in mind. The objectives also give a shadow

of the strategy company is willing and trying to follow.

Problem Statement

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It seems that the organization is now coming out of the problems. In past the

organization has faced plenty of problems but due to the proper planning and well

implementation problems are decreasing day by day. But still the organization is not

totally out of the trouble.

18. REFERENCE & SOURCES USED

Reference
Indus Sugar Mills Kot Bahadar Rajan Pur
Abid Hussain (Chief Accountant)

Source.
(PSMA) Pakistan Sugar Mills Association.

19. ANNEXES
Will be provided at the time of the submission of hardcopy.

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