The management of AGHA held an analyst briefing today to discuss the recent financial performance and give an outlook of the company going forward. Below are the key takeaways.
Brief Takeaways
· Company has a 5% market share with annual capacity of 250k tons per annum.
· AGHA achieved a past 5-yr topline CAGR of 22%.
· Company expects topline to gradually grow to PKR 150-170bn from PKR 30bn at present once its new Mi.Da. plant comes online (end of FY23 targeted).
· AGHA primarily sells to institutional clients (76%), which held up during rains but is experiencing some slowdown currently.
· Remaining sales (24%) are made to retail clients. Plan is to penetrate commercial segment once the new plant comes online.
· Management plans to also penetrate the North region as well as Baluchistan province once the new plant comes online.
· The company can use a mix of scrap due to flexible blending at its plant. For example, the company uses scrap chips that others could not during COVID.
· AGHA can produce low carbon billets which is used by the engineering sector to manufacture different types of wires e.g. barbed wires and wire rods. These are high margin products as the selling price of these billets is almost equal to final product (rebar) prices. Previously they were being imported.
· The company has an electric arc furnace – the benchmark of steel making and is used in Europe etc. Previously, Pakistan Steel Mills had a blast furnace which uses iron ore.
· AGHA is also Pakistan’s first green steel plant.
· The company has a composite unit – melting and rolling at the same site.
· Major jump was witnessed in other expenses in FY22. This was due to foreign currency loss (PKR 350mn) on LC opened for Mi.Da. plant, coupled with replacement cost booked on account of assets of the company.
· Mi.Da. plant was secured at USD 18mn but it is now worth USD 235mn.
· Company remains highly leveraged like other steel companies but AGHA has not faced any trouble in making repayments.
· Steel sector is different from the cement sector as demand decline of the former shrink’s supply by a bigger quantum since it pushes small players out of the market. Therefore, slowdown in the industry gives AGHA an edge to grow next year.
· Company management believes interest rates have peaked or are near peak, and this will build a pressure on bottom-lines in FY23.
· On the demand front, 2HFY23 would be better due to rehabilitation post floods. Albeit, the year would end at stable to negative offtake. Volumes could improve if some public sector projects take off.
· The company plans to diversify its product line but it is yet to disclose as the board is still discussing. AGHA wants to become an exporter.
· As a pilot project the company has installed a 2MW solar power plant at its site, and another 3MW will be installed next year. The company is also discussing having its own captive power plants.
· Rebar retention prices in North at present are PKR 208-212/ton & South PKR 215/ton.
· Gadani normally has stock of 600-800k tons, but right now they only have stock of 175-200k tons. It’s a record low. A one million ton per annum market has shrunk to 300-400k tons as they cannot keep up. Time between ordering ships to reaching Pakistan is almost 3 weeks, and they cannot open LC’s due to State Bank restrictions.
Courtesy- AHL Research