Amreli Steels Limited (ASTL) held its analyst briefing earlier today, wherein the following was discussed:

· To recall, the company posted PAT of PkR1.3bn (EPS: PkR4.46) for FY22, lower by 3%YoY compared to the same period last year. ASTL’s Net sales for the year were PkR58.1bn, higher by 48%YoY.

· Despite declining volumes, the rising revenue was due to higher retention prices. However, gross margins for the quarter remained under pressure due to skyrocketing scrap prices, peaking at ~US$690/ton. To note, ASTL’s rebar sales stood at 370k/49k for FY22/1QFY23.

· Management claimed gross/net margins remained dented during the outgoing fiscal year majorly due to: (1) an increase in scrap prices & other input costs, e.g. fuel/power, (2) exchange losses caused by currency volatility, (3) rising finance costs, (4) imposition of super taxes

· Previous quarter’s monsoon rains and flash floods significantly reduced overall construction activity, subsequently denting the market for rebars, which was already negatively impacted by rising prices and high-interest rates. For this reason, ASTL suspended production operations during Aug/Sep’22 for inventory management.

· The management estimates that recent floods caused an overall 40% reduction in steel during the outgoing quarter. Overall, the decline in industry demand during FY23 is expected to remain between 10-15%.

· Demand recovery is expected to coincide during the second half of CY23. The said reemergence may be on the back of flood rehabilitations/reparations and future dam projects. In addition to those, around 230 pending high-rise building projects in the South (currently pending under SBCA) are expected to provide further impetus.

· Management claimed that local mills had suspended their operations for the time being due to higher commodity prices alongside other economic challenges. To note, scrap prices rose by ~20% during 4QFY22, averaging at ~US$640/ton.

· Province-wise sales during FY22 were as follows: 60.79% in Sindh, 28.87% in Punjab, 6.22% in KPK, and 4.15% in Baluchistan.

Courtesy – AKD Research