Amreli Steels Limited (FCCL) announced the financial result for 1QFY23 today whereby earnings arrived at PKR 204mn (EPS: PKR 0.69) against PKR 702mn (EPS: PKR 2.36) last year, down by 71% YoY. Whereas the company posted a loss in the last quarter primarily due to hit from super tax.

Result Highlights                                                       

·        During 1QFY23, sales showed a decline of 17% YoY as a result of a significant dip in rebar sales given monsoon rains and floods across the country with plant shut down between 31st Aug’22 to 1st Oct’22 (we estimate offtake of 52k tons vs. 88k tons in 1QFY22) which offset the impact of hike in retention prices, projected at PKR 188k/ton against PKR 134k/ton in SPLY. The decline was more noteworthy on a QoQ basis, we believe offtake was cut by 40% from 88k tons in 4QFY22 while prices settled at PKR 177k/ton in the last quarter. Albeit, we await management guidance.

·        Gross margins in 1QFY23 settled at 16.2% vis-à-vis 8.9% in 4QFY22 and 14.3% in 1QFY22 despite the plant being out of operations for a month as we believe the company benefitted from a massive decline in scrap prices to USD 450/ton vis-à-vis USD 640/ton in Mar’22 when the Russia Ukraine war broke out and over USD 500/ton in SPLY. 

·        Finance cost settled at PKR 928mn during the quarter under review, up by 2x YoY, on account of augmented borrowing as well as higher interest rates.

·        The company booked effective taxation at 4.8% in 1QFY23 vs. 18% in SPLY, due to recognition of tax credits.

Courtesy- AHL Reserch