We believe ISL’s sales (FY25: c.264,000 MT) have bottomed out and will recover from FY26 onwards. This is supported by anti-dumping duties on Chinese Galvalume and improved policing of FATA/PATA.
The stock trades at an FY26 EV/EBITDA of 6.88x, declining to 5.31x in FY27—below its long-term average of 7.0x. Current utilisation of 26% (a 10-year low) offers significant spare capacity, promising rapid multiple compression as volumetric growth takes off.
Buy rating maintained
ISL is well-positioned for strong volumetric growth and margin expansion, supported by regulatory protection and a favourable balance sheet. New anti-dumping duties and higher regional sales taxes are projected to unlock demand, driving 47% volumetric growth in FY26. Concurrently, government tariff rationalisation and improved fixed cost absorption are expected to lift gross margins by 3.16ppt YoY to 11.7% in FY26. However, the company is expected to recognise a one-off PKR916mn fine imposed by the Competition Commission of Pakistan (CCP), without which EPS would have been higher at PKR6.84. That said, we reiterate our Buy rating on ISL, with a rolled over TP of PKR110/sh. The scrip currently trades at a FY26 EV/EBITDA of 6.88x.
Local demand gearing up for a revival
With low utilisation of just 26% in FY25, ISL is well positioned for meaningful demand recovery, driven by a series of favourable regulatory developments. The recently imposed anti-dumping duty on Chinese Galvalume, which is a key substitute for HDGC, is expected to unlock an additional 150,000 tons of demand within the formal sector, wherein we estimate ISL to capture c.50% of volumes. Improved policing in FATA and PATA via imposition of sales tax (10% vs. 0% last year), should further help the company regain domestic market share. Supported by broad demand rebound, evident in 30% growth in two- and three-wheeler sales and 22% and 35% growth in refrigerator & deep-freezer production, we expect ISL to achieve 47% volumetric growth in FY26.
Duty rationalisation to support margins
The government’s commitment to the IMF to reduce tariffs led it to reduce customs duties on raw material imports in the FY26 budget. ISL was a beneficiary of this policy, as the duty differential between HRC and the final products (CRC or HDGC) increased from 5% to 7.5%. This specific benefit is expected to directly improve gross margins directly, leading to a 3.16ppt YoY jump to 11.7% in FY26. The additional benefit above the 2.5% duty differential increase is due to improved fixed-cost absorption from higher volumes. Currently, CRC-HRC margins stand at US$60/MT, which we expect to gradually converge to long-term levels of US$70/MT over the year as reduced tariff uncertainty and lower global interest rates help reignite demand.
Balance sheet remains well-positioned
ISL maintains a comfortable cash position of PKR2.2bn (PKR5.14/sh), while on the liability side, its long-term borrowings consist entirely of concessional facilities (TERF, LTFF and renewable energy financing). On the short-term side, 38% of the total PKR12.7bn in borrowings comprises export refinance, which carries an average rate of 8% compared to the policy rate of 11%. Hence, we believe that the company is well-shielded from exogenous shocks, relative to other sector players (both long and flat steel).
