ISL reported a 2QFY25 NPAT of PKR355mn (EPS: PKR0.82), doubling QoQ but a sharp 71% YoY decline. Cumulative NPAT for 1HFY25 plummeted to PKR534mn (EPS: PKR1.23), down 77% YoY. The result exceeded our estimated 2Q EPS of PKR0.58, driven by higher-than-expected revenues. However, ISL did not announce a half-yearly dividend, contrary to our expected DPS of PKR1.0.

Key highlights from 2QFY25 results:

§  Net revenues surged 36% QoQ to PKR18.3bn, significantly surpassing our estimate of PKR14.2bn. The deviation likely stems from higher-than-expected local sales. The formal steel industry has recently regained some of its market share; producers in FATA/PATA now face stricter requirements at the import stage (for payment of applicable duties on imports, which drains their cash flows).

§  Gross margins improved sequentially by 1.3ppt to 8.1%, driven by a higher contribution from high-margin local sales and improved CRC-HRC spreads globally. They averaged an estimated US$81/ton during the quarter (up 15% QoQ but down 25% YoY).

§  Finance costs declined 26% QoQ to PKR226mn, mainly due to lower interest rates during the quarter. ST borrowing, however, may have risen due to increased sales.

§  The effective tax rate rose to 42% from 29% SPLY due to the removal of export tax incentives.

The recent uptick in revenues highlights the effectiveness of stricter measures for producers in the FATA/PATA region. Rate cuts should support domestic demand in the future. However, ISL’s profitability remains under pressure due to weak global CRC-HRC spreads. We maintain our Neutral rating on the scrip.