Amreli Steels Limited (ASTL) reported a NLAT of PKR462mn (LPS: PKR1.55) in 2QFY24, compared to an NLAT of PKR173mn (LPS: PKR0.58) in the previous quarter. The result was worse than our expected LPS of PKR0.65, primarily due to higher-than-expected finance cost. This result take 1HFY24 LPS to PKR2.14 compared to PKR0.62 last year.

Key highlights from 2QFY24:

Revenue clocked in at PKR11.4bn, reflecting a slight improvement of 4% QoQ but a 14% YoY decline, higher than our expected revenue of PKR12.0bn. Revenues have remained more or less flat sequentially owing to subdued demand

Gross margins contracted by 2ppt QoQ but improved by 3.7ppt YoY, reaching 10.2%. We projected gross margins of 10.5% for 2QFY24. Sequential contraction in margins is due to a decline in rebar prices.

Finance cost amounted to PKR1.2bn for the the quarter, up 23% QoQ and 21% YoY, this was higher than our expected finance cost of PKR1.0bn, likely due to higher borrowings during the quarter.

The company was able to limit its losses as it reported a tax reversal of PKR202mn during the quarter. In the same period last year the company reported a tax reversal of PKR243mn. The reversal is likely due to utilization of deferred tax assets; however, we await detailed financials for further clarity.

ASTL continues to grapple with high finance costs amidst sluggish steel demand. However, in the event of declining interest rates, ASTL stands to benefit from reduced finance costs significantly. We maintain our Neutral rating on the stock with a target price of PKR23.0/sh.

Courtesy- IMS Research.