Karachi, July 09, 2021 (PPI-OT): STPL: A solid plan but slower progression
Current demand of tin plate in the country is ~80-90k mt/annum. STPL imports Tin Mill Black Plate (TMBP) in coil form with specifications 0.15 to 0.32 mm thickness for premium grade products and procures locally (through Aisha Steel) to cater to the secondary and lower secondary grade markets. Tin ingot coating is done on the sheets through an electrolytic process which are converted to primary or food grade level tinplate sheets.
Cans for Oil and ghee industries are manufactured with these. Non-food grade or secondary market refers to the paint cans (e.g: Berger, Nippon) and cans for chemical manufacturers. Roughly 45-50% sales of STPL are to food grade segment and the rest are to non-food grade whereas ~93% of Cost is raw material which is ideally TMBP. A 1 MW solar plant at Winder is also under construction which will reduce electricity costs. The company used to import premium quality of TMBP at a lower cost from China as compared to local procurement.
According to the company, NTC has agreed that anti-dumping duties on import of TMBP will be reviewed and a representative from the industry will also be involved. The company showed a significant improvement in operating activities and posted a 77% YoY increase in revenue and 47% YoY in capacity utilization during 9MFY21, despite the pandemic situation. Exports also increased 147% YoY during the same period. According to management guidance, quantities produced and sold both are likely to surpass 30k mt for FY21.
In the local market, some contracts are long term e.g with customers like Dalda, Berger Paints, Punjab Oil Mills Limited etc where the company has to compromise on margins. The company has also been trying to make its position in the export market for the past few years and recently has started to export good quantity to Saudi Arabia, Malaysia, Africa, Italy and Dubai. STPL Foresees an Export market of 30k tons per annum going forward. To note, ISL and ASL have a 4hi Cold Rolling Mill whereas STPL has procured a 6 Hi Reversing Cold Mill (More efficiency and energy savings).
Moreover, the market segment for 0.15 to 0.32 thickness is the lighter market or the premium segment (market for appliances etc), which is targeted by STPL. Currently, flat producers are not catering to this market and appliance manufacturers are importing sheets at the moment.
The Expansion
Total project cost has been revised upward to Rs8.5bn from Rs6.5bn previously, out of which Rs2.35bn from own equity has been injected till January-2021. While the company had planned to finance the remaining amount through TERF, the loss of opportunity to avail the same has now led to the company changing the finance mix to a 60:40 Debt: Equity for the project.
For the debt portion, less than 50% would be on LTFF rates (~5%) and the remaining will be at regular lending rates. The company is working with a consortium of banks including NBP, HBL, BAFL and AKBL among others. Further ~Rs1.5bn equity injection is required, which is likely to be financed through a rights issue of shares in coming months. The TMBP plant viability has improved as the company currently incurs an 18% duty on raw material, TMBP, which will drop to 0% when the plant comes online and the company starts importing HRC (duties on HRC reduced to 0% from 5% earlier in Federal Budget FY22).
Moreover, the company qualifies for the 10 year tax benefit as it has been granted SEZ status. In addition to that, another positive is the removal of turnover tax in the recent budget. In-house availability of TMBP will decrease conversion costs due to better capacity utilization, consistency in production and quality will increase exports and it will bring efficiencies in the process which in turn would improve lead time. An arbitration case has been filed by CISRI (the supplier) in Singapore. The matter will be decided by Singapore Arbitrator in the dispute’s final hearing which will be conducted in Jan-2022. If the decision comes in favour then it may take further 12 months in plant installation and COD. This means if all goes well, the plant will be able to come online at the earliest by 2HFY23 as opposed to their initial target of 1QFY23.