A review of Amreli Steels Limited

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The Management of Amreli Steels Limited held a Corporate Briefing Session today to discuss the financial result and future outlook.


· ASTL posted a profit of PKR 312mn (EPS: PKR 1.05) in 2QFY21, against a loss in SPLY and depicting a jump of 2.8x QoQ.

· Primary reason behind the growth remained a 21% jump QoQ in off-take to 96k tons in 2Q led by rising construction activity in the country.

· Albeit, margins at 10.8% in 2Q vs. 10.9% in 1Q remained below street consensus as higher scrap and power costs (PKR ~18/KwH) eroded the benefit of higher prices and volumetric growth.

· Pertinently, rebar prices were constant in Oct’20 when the company sold its highest ever single month volume of over 36,000 tons. They slightly increased by PKR 1,000 a ton in Nov’20 for retail clients (effective increase of PKR 600/ton) and rose significantly in Dec’20 when least sales were made due to volatility in prices. Hence, price hikes could not augment margins.

· Since Dec’20 to date, ASTL has cut rebar prices by PKR 5,000/ton and current price is set at PKR 136,000/ton. It is expected they may further come down by a maximum of PKR 1-2,000 per ton.

· Going forward, while the company has booked scrap between USD 450-500 per ton in Jan’20, next quarter margins may remain stagnant given inventory gain (higher rebar prices). The impact will be muted though as thus far 3Q has shown some slowness (buyers await further cuts in prices). However, margins may be slashed in the following quarter due to significantly higher scrap prices.

· The company management targets to sell 90,000 tons in 3Q and between 115-120,000 tons in the subsequent quarter.

· The company has no plans to expand at present or avail the TERF offered by SBP (long term goal of expanding to a 1.1mn tons plant from 600k currently requires an investment of PKR 18-20bn). Instead, ASTL will focus on improving utilisation and expects its rebar sales to grow by 25% in FY22.

· Current scrap mix of the company is 80: 20 for Shredded: Bundles. Shredded crap cost is currently at USD 385/ton and is expected to hover at similar levels. Bundles are usually USD 30-40/ton more expensive.

· Although a notification is awaited, electricity tariff will potentially go up by PKR 1.95/KwH in the upcoming quarters, translating to a cost increase of PKR 1,500 per ton.

Courtesy – AHL Research

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