Earnings Report /
Pakistan

Amreli Steel: 1QFY23 Review: Earnings beat on GMs and taxation

  • ASTL has posted NPAT of PKR204mn (EPS: PKR0.69) in 1QFY23, down 71% YoY, while halving QoQ

  • ASTL has posted gross margins of 16.2%, up a sharp c.7ppt QoQ/2ppt YoY, higher than our expectation of 12.2%.

  • Despite earnings beat, this is a weak result from ASTL, as volumetric offtake has seen a noticeable decline.

Intermarket Securities
25 October 2022

ASTL has posted NPAT of PKR204mn (EPS: PKR0.69) in 1QFY23, down 71% YoY, while halving QoQ. The 1Q result has come in higher than our projected EPS of PKR0.33, where the variance emanated from higher-than-expected gross margins and low effective tax rate.

Key takeaways from 1QFY23 result include:

  • Revenue has clocked in at PKR9.8bn (down 17% YoY), significantly lower than our expected revenue of PKR12bn. The decline in revenues is majorly attributed to lower-than-expected volumetric sales. Our back of the envelope working suggests volumes clocked in at around c.50,000 tons, against our expected volumes of c.60,000 tons. 

  • ASTL has posted gross margins of 16.2%, up a sharp c.7ppt QoQ/2ppt YoY, higher than our expectation of 12.2%. The sequential increase in margins can be attributed to (i) timely procurement of scrap, and (ii) higher than expected FCA reversals. We await detailed accounts for further clarity.

  • Distribution and Admin expenses clocked in at PKR219mn and PKR164mn, both down 8% YoY. The decline in distribution cost is likely due to depressed sales during the quarter. 

  • Finance cost has come in at PKR928mn, up 16% QoQ (doubled YoY), likely due to a rise in short term debt and elevated borrowing rates.

  • Effective tax rate clocked in at 4.8% against our expectation of 29%. We believe the company has booked either deferred tax assets but await detailed financials for further clarity.

Despite the earnings beat, this is a weak result from ASTL, as volumetric offtake has seen a noticeable decline in the backdrop of elevated construction cost and flooding. We highlight that weak demand in the immediate aftermath of the floods had resulted in ASTL’s plant closure in September. Going forward, we believe that demand should once again rebound as the rehabilitation of flooded areas begins.  We have a Buy rating on the stock with a June 2023 TP of PKR40.0/sh.