Agha Steel Industries Limited (AGHA) announced the financial result for 2QFY23 today whereby earnings arrived at PKR 249mn (EPS: PKR 0.41) against PKR 619mn (EPS: PKR 1.02) last year, down by 60% YoY. Whereas bottom-line posted a 62% jump QoQ primarily due to higher margins as the company relied on cheaper domestic scrap. This took the profitability in 1HFY23 to PKR 402mn (EPS: PKR 0.66), against PKR 1,178mn (EPS: PKR 1.95) last year.
· During 2QFY23, sales showed a decline of 21% YoY as a result of a significant dip in sales of rebars and billets (estimated at ~28k tons, down by 35% YoY) given slowdown in the country which offset the impact of hike in rebars prices (forecast at PKR 205,000 per ton against PKR 177,500/ton in SPLY). Albeit, on a QoQ basis, we believe minor uptick in offtake and prices aided the 8% jump in revenue. Whereas the 22% dip in net sales during 1HFY23 represent an approximate 37% decline in volumes, which was slightly cushioned by improved retention prices.
· Gross margins in 2QFY23 settled at 24.3% vis-à-vis 22.1% in 2QFY22 as the company managed to use domestic scrap (amid the advantage an electric arc furnace has over other induction mills) which offset the impact of higher energy tariff, and PKR depreciation. Similar factors came into play on a QoQ basis (1QFY23 margins: 21.7%) and during 1HFY23 (margins of 23.0% vis-à-vis 22.6% in 1HFY22).
· Finance cost settled at PKR 813mn during the quarter under review, up by 3x YoY, on account of augmented borrowing and higher interest rates.
· The company booked effective taxation at 42% in 2QFY23 vs. 8% in SPLY. Although we believe the company booked super tax this year, it appears there is a one-off tax adjustment as well. We await clarity from the management regarding the same.
Courtesy – AHL Research