Amreli Steels Limited (ASTL) announced the financial result for 3QFY22 today, posting a profit after tax (PAT) of PKR 531mn (EPS: PKR 1.79) compared to PKR 503mn (EPS: PKR 1.69) in SPLY, up by 6% YoY / down by 12% QoQ. This took the 9MFY22 earnings to PKR 1,834mn (EPS: PKR 6.18) against PKR 926mn (EPS: PKR 3.12) last year.
Analyst briefing takeaways
· PKR-USD adverse movement was negative for the company (9MFY22= 173/USD vs. 9MFY21= 160/USD). Other negatives were higher interest rates, inflation which continues to inch up and augmented electricity tariff.
· International scrap prices were set at USD 536/ton in 2QFY22 and went to USD 554/ton (CNF) in 3QFY22, this took the average for 9MFY22 to USD 350/ton from 9MFY21 average USD 538/ton.
· Current scrap mix: 70% Shredded, 15% HMS, 15% DRI. Major scrap is being procured from Europe – 70% (mainly UK – 50%), remaining from USA and South Africa.
· Post Ukraine crisis, scrap prices went up to USD 640/ton where they currently hover still. Based on this, local rebar prices should be around PKR 235k per ton.
· Additives have gone up from PKR 2,000/ton to PKR 7,000/ton at present.
· Average cost of additives during 9MFY22 is PKR 4,700/ton compared to PKR 2,000/ton in SPLY.
· Electricity tariff in 9MFY22 was PKR 20/Kwh compared to last year PKR 14/KwH. Electricity tariff in 3QFY22 was PKR 20/Kwh compared to PKR 18/KwH in 2Q.
· Rebar sales increased in 9MFY22 to 281,735 from 272,198 tons last year.
· Finance costs went up QoQ due to augmented short term borrowing (currently at PKR 14bn) amid greater working capital requirement post increase in scrap prices
· ASTL currently holds 30k tons in hand of finished goods compared to 18k tons at the end of Jun’21.
· Sales target for FY22 was set at 420k tons by ASTL management initially, this was revised downwards after the Ukraine crisis. The company is expecting good demand in June-July 2022 and close the year at 375k tons, depicting marginal growth over last year.
· ASTL targets 10% growth next year while country’s demand appears either flat or to grow by 4-5%. Small mills have shut down as operating with scrap costs of USD 640/ton is not possible for them, so ASTL will meet this demand.
· In US, prices have been increased by USD 345/ton in the last one month as scrap problems are global. It appears scrap has become constant at USD 640/ton and so Amreli has begun buying at that price as well, so have other players.
· Company holds scrap inventory at USD 550/ton at present.
· Rebars imported from China at present will cost PKR 350k per ton while rest of the world will cost PKR 250k per ton.
· Company is charging PKR 20/KwH even on incremental production. This should be PKR ~13/KwH and the company is confident it will win this case in the court so might book reversal in the next quarter. Positive net impact will be PKR 20mn on profit, rest of the impact was passed on due to cheap inventory.
· ASTL recently expanded its grid capacity from KEL, installation will take another year or so. Nameplate capacity of melt shop requires some downtime of 18% per annum so production settles at 490k tons. Company plans to eventually take it to nearly 600k tons per annum. It takes about 1.5 years to put up a new melt shop and ASTL management will contemplate at the end of FY23 to further expand melting capacity.
Courtesy – AHL Research