Amreli Steels Ltd 1QFY21 Review

Amreli Steels Ltd (ASTL) posted NPAT of PKR111mn (EPS: PKR0.37) in 1QFY21, compared to a NLAT of PKR81mn (LPS: PKR0.27) in SPLY. The result came in much better than our projected NPAT of PKR25mn (EPS: PKR0.08), where the deviation primarily stemmed from (i) higher-than-expected gross margins and tax credit and (ii) lower-than-expected other expenses.

Key takeaways from 1QFY21 result include:

Net sales clocked in at PKR7.

9bn for the quarter, up 30% yoy and 54% qoq, higher than expected. This was led by both pent-up and new demand generated by the easing of lockdown conditions and government push on construction activity, resulting in higher volumetric sales, in our view.

Gross margins witnessed a staggering 6.7ppt jump qoq at 10.9%, slightly above our expectation of 10.5%. We believe that GMs have normalized, in the backdrop of (i) higher volumetric sales compared to 4QFY20, (ii) no one-off’s related to electricity tariffs during 1QFY21, and (iii) sourcing scrap at lower prices (US$251/ton during 4QFY20).

Admin cost fell by 12% yoy, however up 2.8x qoq (due to return to normal operations). Other expenses declined 68% qoq providing much-needed respite to the bottom-line. Distribution expenses clocked in at PKR201mn, up 18% yoy and 43% qoq, in line with the rise in sales.

Finance cost was broadly in line with expectations at PKR456mn, down 17% yoy and 9% qoq , on the back of lower interest rates. ASTL availed a tax credit of PKR60mn during the quarter.

1QFY21 has been a generous quarter for ASTL (recall that the company has been posting consecutive losses since 3QFY19 and this is the first profit since then), in the backdrop of lower finance costs (interest rates down to 7% from 13.25% earlier) and imminent signs of an economic recovery. Strong rebound in demand has been witnessed post lifting of lockdowns, where we believe that it will persist on account of increasing construction activity, going forward. We maintain our Neutral stance on the stock with a June 2021 TP of PKR44.0/sh.

 Intermarket Securities Limited. 

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