Earnings Report /
Pakistan

International Steels Ltd: 1QFY23 Review: Earnings beat despite GM miss

  • 1Q result has come in higher than our expected EPS of PKR0.78, but lower distribution cost offset a miss on GMs.

  • International Steels Ltd (ISL) has posted NPAT of PKR448mn (EPS: PKR1.03) in 1QFY23, down a sharp 83% YoY.

  • ISL posted a gross margin of 13.5%, down 4.2ppt/0.2ppt YoY/QoQ, lower than our expectation of 14.1%.

Intermarket Securities
24 October 2022

International Steels Ltd (ISL) has posted NPAT of PKR448mn (EPS: PKR1.03) in 1QFY23, down a sharp 83% YoY. That said, the 1Q result has come in higher than our expected EPS of PKR0.78, where lower distribution cost more than offset a miss on gross margins.

Key Highlights:

  • Net revenue has clocked in at PKR16.5bn, down 32% YoY (down 21% QoQ), lower than our expectation of PKR17.9bn, amid lower volumetric offtake. This is possibly attributed to lower production volumes of 2/3 wheelers and white goods.

  • ISL posted a gross margin of 13.5%, down 4.2ppt/0.2ppt YoY/QoQ, lower than our expectation of 14.1%. This decrease in margins emerged from elevated inventory losses coupled with lower than expected CRC-HRC spreads, in our view.

  • Distribution and Administration expenses have come in at PKR65mn (-64% YoY) and PKR68mn (-20% YoY), respectively. Lower distribution expenses may be attributed to lower volumetric off-take but this is a sharp decline and we await detailed accounts for further clarity.

  • Finance cost clocked in at PKR863mn, nearly double versus the prior quarter, owed to rising borrowing costs and exchange losses, in our view.

  • The effective tax rate clocked in at 9% in 1Q, which may be due to elevated export sales.

Despite the earnings beat, this is a poor result, especially as GMs have come off, and it is only lower distribution cost and taxation that have pushed ISL’s EPS over our estimates. Headwinds remain in the form of sluggish demand and moderating CRC-HRC spreads. The stock has come off post result announcement.