AKD Securities Limited – Off the Analyst’s Desk (November 18, 2022)

Karachi, November 18, 2022 (PPI-OT): ASTL: 1QFY23 Analyst Briefing

Amreli Steels Limited (ASTL) held its analyst briefing earlier today, wherein the following was discussed:

To recall, the company posted PAT of PkR1.3bn (EPS: PkR4.46) for FY22, lower by 3%YoY compared to the same period last year. ASTL’s Net sales for the year were PkR58.1bn, higher by 48%YoY.

Despite declining volumes, the risen revenue was majorly due to higher retention prices. However, gross margins for the quarter remained under pressure due to sky rocketing scrap prices, peaking at ~US$690/ton. To note, ASTL’s rebar sales stood at 370k/49k for FY22/1QFY23.

Management claimed gross/net margins remained dented during the outgoing fiscal year majorly due to: (1) increase in scrap prices and other input costs e.g. fuel/power, (2) exchange losses caused by currency volatility, (3) rising finance costs, (4) imposition of super taxes.

Previous quarter’s monsoon rains and flash floods significantly reduced overall construction activity, subsequently denting the market for rebars, which was already negatively impacted by rising prices and high interest rates. For this reason, ASTL suspended production operations during Aug/Sep’22 for inventory management purposes.

The management estimates that recent floods caused an overall 40% reduction in the steel during the outgoing quarter. Overall, reduction in industry demand during FY23 is expected to remain between 10-15%.

Demand recovery is expected to coincide during the second half of CY23. The said re-emergence may be on the back of flood rehabilitations/reparations and future dam projects. In addition to those, around 230 pending high-rise building projects in South (currently pending under SBCA) are expected to provide further impetus.

Management claimed that local mills have suspended their operations for the time being majorly due to higher commodity prices alongside other economic challenges. To note, scrap prices rose by ~20% during 4QFY22, averaging at ~US$640/ton.

Province-wise sales during FY22 were as follows: 60.79% in Sindh, 28.87% in Punjab, 6.22% in KPK, and 4.15% in Baluchistan.