Amreli Steels Limited (ASTL) announced the financial result for 4QFY22 today, posting a loss after tax (LAT) of PKR 509mn (LPS: PKR 1.71) compared to a PAT of PKR 443mn (EPS: PKR 1.49) in SPLY. Primary culprit behind this loss has been the fuel charge adjustment (FCA) in the energy tariff as well as recognition of super tax and deferred tax liability. This took the FY22 earnings to PKR 1,326mn (EPS: PKR 4.46) against PKR 1,368mn (EPS: PKR 4.61) last year.
· Topline during 4QFY22 clocked-in PKR 15.6bn, displaying a jump of 30% YoY given a sharp rise in rebar prices which offset the impact of lower volumes (88k tons vs. 100k tons in SPLY). On a QoQ basis, sales dipped by 2% due to volumetric decline (3Q sales: 98k tons). During FY22, revenue showed a surge of 48% YoY amid higher prices (PKR 157k per ton vis-à-vis PKR 104k per ton) while volumes remained flat at 370k tons.
· Gross margins arrived at 8.9% in 4QFY22 in contrast to 10.8% last year in the wake of higher scrap prices (USD 600/ton average), inflationary impact on ferro alloys, PKR depreciation, and augmented electricity tariff (PKR 30/KwH vs. PKR 18/KwH in 4QFY21). This took the margins in FY22 to 11.2% vs. 11.6% in FY21; first nine month of the year fared better.
· Finance costs rose by 91% YoY / 23% QoQ to PKR 798mn given augmented borrowing (higher working capital requirement due to surge in scrap prices) as well as hike in interest rates.
· The company booked a hefty tax charge in the last quarter on account of super tax (PKR 126mn) and deferred tax liability (PKR 390mn).
Analyst briefing takeaways
· Augmented cost for FCA in May and June-22 (+ PKR 489mn) plus super tax and deferred tax liability impact (+PKR 510mn) eroded profitability in the last quarter.
· 4Q sales arrived at 88,340 tons vs. 98,492 tons in 3Q due to slow down in economy, monsoon rains and political regime change, management views.
· Average rebar price were increased to PKR 177k/ton against PKR 162k/ton in 3Q led by PKR depreciation, higher scrap prices and augmented RLNG rate.
· Scrap prices rose to USD 600/ton (CNF) in the quarter from USD 553/ton in 3Q amid Russia-Ukraine war, which also eroded margins.
· Current scrap procurement cost is USD 470-475/ton (prices are volatile, they came down to USD 450/ton but are stable near USD 470/ton currently).
· Finance costs went up QoQ amid higher borrowing (PKR 1bn additional borrowing given higher scrap prices) as well as hike in interest rates.
· The company bought local scrap of just 5% of total scrap mix in FY22, it is hardly available whereas quality and invoice check is also difficult.
· Rebar prices were reduced by PKR 10k/ton recently due to monsoon rains. In most places, there is no strength to shield rebars from rains and work on construction has been put on halt on various projects since the past few weeks.
· For the non-ferrous segment, the company has not yet submitted an LC to the State Bank (CAPEX is estimated at PKR 600mn). The setup will take 8-9 months, so sales can be expected from FY24.
· PKR 1bn is subsidized financing (TERF) in the long term borrowing.
· Company has forecast flat sales in FY23. Theoretically, cement sales in the upcoming year are forecast to go down which suggests decline in steel sales as well but ASTL management plans to maintain offtake. Worst case scenario for ASTL will be a dip of 10% in dispatches on a YoY basis.
· Many expansions in the sector were on the drawing board but due to the PKR losing its value, no major expansion appears on the horizon at present, apart from existing expansions underway (Agha and Mughal).
Courtesy – AHL Research
Kindly see the PDF attached for further details.
Thanks & Regards