BMA Capital Management hosted a webinar on Steel Sector yesterday where we invited Mr. Taha Umer, Financial Controller and Mr Fazal Ahmed, COO & CFO of Amreli Steels Limited (ASTL) to discuss the outlook of the sector in the backdrop of COVID-19 pandemic. Key takeaways from the session are given below:
The company reported a loss of PKR 439mn (LPS: PKR 1.48) in 4QFY20 against a loss after tax of PKR 191mn (LPS: PKR 0.64) in SPLY, taking FY20 loss after tax to PKR 1,129mn (LPS: PKR 3.79). Moreover, gross margins during 4QFY20 declined by 1.7ppts to 4.2% whereas gross margins for FY20 clocked in at 7.4%. Reason behind the decline in profitability during the year was on account of i) changes in sales tax regime which raised high end product prices, 2) implication of 1.5% turnover tax, 3) imposition of CNIC condition that affected overall demand, 4) axle load condition that increased transportation cost and 5) ISPA and FCA withdrawal charge by KE of 466Mn in Q3. The management expects to pass on these costs to customers to maintain their margins going forward.
The company sales volume declined by 3.6% to 283k tons in FY20 mainly on account of Covid-19 led shutdowns during 2HCY20 of around 60 days. On a sequential basis, rebar volume declined by 30/42% QoQ/YoY to around 55k Tons in 4QFY20. The management is planning to achieve the sales volume of 350-360k Tons per year going forward assuming Total Rebar demand of 4.5Mn.
As per the management, they availed a principal deferment of PKR 8bn which includes both long and short term debt out of which PKR 3bn has already been paid and the remaining debt is expected to be paid by January 2021. The management also availed the SBP wages scheme worth PKR 400Mn.
Presently, Electricity cost is PKR14.5/KWH. With increase of PKR2.89/KWH from Sep 20, the total cost is expected to be around PKR 17.5/KWH.
Average inventory cost of the company currently stands at US$ 315 per Ton which is expected to rise (↑ US$ 20 per Ton) due to the uncertainty in Chinese market.
The management stated that Covid-19 along with PKR devaluation and higher interest rates severely impacted the business activities in FY20.
As per the management, CPEC related activities, dams and housing schemes are going to be the game changer that will help benefit local steel industry.
While commenting on the upcoming capacity expansion of Agha steel, the management stated that there will be no compromise on steel prices despite direct competition from Agha Steel.
Going forward, management expects FY21 to remain flat and expects demand to pick up from FY21 onwards.