Amreli Steels reports a NLAT of PKR666mn (LPS: PKR2.24)

Amreli Steels Limited (ASTL) reported an NLAT of PKR666mn (LPS: PKR2.24) in 3QFY24, compared to PKR462mn (LPS: PKR1.55) in the previous quarter. Due to lower-than-expected gross margins, the result was worse than our expected LPS of PKR1.92. This result takes the 9MFY24 NLAT to PKR1.3bn (LPS: PKR4.38), compared to earnings of PKR0.98/sh last year.

Key highlights from 3QFY24:

  • Revenue was PKR11.2bn, reflecting a slight decrease of 2% QoQ and 4% YoY. However, it was higher than our estimate of PKR10.2bn, potentially pointing to stable volumes during the quarter.
  • Gross margins declined by 2.2ppt QoQ and 10.1ppt YoY, reaching 7.9%, below our projected 10.4%. This contraction could be attributed to elevated energy costs and a 6% QoQ increase in scrap prices; while domestic prices influenced by subdued demand and smuggling competition, remained stable.
  • Finance cost amounted to PKR1.3bn (in-line), flat QoQ but up 30% YoY; the latter increase is primarily due to higher interest rates than last year.
  • ASTL could limit its losses as it reported a tax reversal of PKR270mn, without which the company would have reported an LPS of PKR3.15.

ASTL grapples with substantial finance costs amid tepid steel demand and escalating electricity prices. With finance costs amounting to approximately 2.1x EBIT for 9MFY24, even a halving of interest rates may not alleviate the company’s challenges stemming from feeble demand. We reiterate our Neutral rating on the stock, with a TP of PKR30.0/sh.

Courtesy – IMS Research 

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