Agha Steel Industries Limited (AGHA) announced the financial result for 1QFY23 today, whereby earnings arrived at PKR 153mn (EPS: PKR 0.25) against PKR 558mn (EPS: PKR 0.92) last year, down by 73% YoY. Whereas the bottom line posted a 33% jump in QoQ primarily since, in the previous quarter, State Bank restrictions to open LCs forced the company to rely on domestic scrap, which was more expensive compared to imported DRI.
· During 1QFY23, sales showed a decline of 23% YoY as a result of a significant dip in sales of rebars and billets (estimated at ~27k tons) given monsoon rains and floods across the country, which offset the impact of hike in rebars and billets prices. The decline was more noteworthy on a QoQ basis; we believe offtake was cut by over 40% from 4QFY22, which countered the impact of higher prices (rebar prices estimated at under PKR 175k/ton in 1QFY23). Albeit, we await management guidance.
· Gross margins in 1QFY23 settled at 21.7% vis-à-vis 23.2% in 1QFY22, given higher energy tariff, PKR depreciation and augmented scrap prices. Albeit, the QoQ improvement in margins (4QFY22: 17.6%) is owed to the procurement of imported DRI, which is much cheaper than domestic scrap that the company used in the last quarter due to restrictions by the SBP on LC opening.
· Finance cost settled at PKR 697mn during the quarter under review, up by 55% YoY, on account of higher interest rates.
· The company booked effective taxation at 18% in 1QFY23 vs. 25% in SPLY, despite recognising 4% super tax this year as the company continues to avail some tax credits.
Courtesy – AHL Research