News in brief:
– Dangote Sugar Refinery Plc has suffered a significant loss due to declining stock prices and operational challenges.
– The company’s backward integration project aims to reduce reliance on imports and improve sustainability but faces hurdles such as investor scepticism and rising costs.
Dangote Sugar Refinery Plc recorded a double-digit loss (-12.20%) last week as its poor performance on the Nigerian Stock Exchange (NGX) continues.
According to our data, the integrated sugar business’ stock is now 71% less valuable than it was in the first week of 2024.
The company, a part of the Dangote Group conglomerate, has faced problems caused by inflation and forex volatility. One report claimed that the depreciating naira translates to a spike in imported raw materials which it relies heavily on.
Dangote has been keen on cutting down its sugar business reliance on imports, which was about 95% in 2023. One of the ways it plans to improve its production while reducing foreign raw materials reliance is through a backward integration project (BIP).
In May 2024, the Group’s Chairman, Aliko Dangote, mentioned that the sugar cane plantation in Numan, Adamawa State, will reach 24,200 hectares (ha) by 2029. Also, the factory located in the state will be expanded to handle the expected increased raw materials input, about 15,000 tonnes of cane.
Dangote Sugar Refinery’s BIP is expected to cost a total of $700 million and is being run in collaboration with the Nigerian government.
However, as the company chases sustainability, its declining stock price points to investors losing confidence in its ability to deliver on its promises. The failure to secure a merger with NASCON Allied Industries, which produces salt and food seasoning, is just another example of its missed targets.
Even the company’s increasing revenue (45.78% in first half of the year) is tied to the hike in domestic sugar prices rising from around ₦64,000 per 50kg in January 2024 to ₦83,000 in August 2024.
It is clear that Dangote Sugar Refinery Plc has to go back to the drawing board to attract investors as its cost of sales grew in the same period, and so did its operating expense and FX losses.
