ASTL posted a NPAT of PKR503mn (EPS: PKR1.69) in 3QFY21, a sharp jump from a NLAT of PKR375mn SPLY (LPS: PKR1.26). This took the cumulative 9MFY21 NPAT to PKR 926mn (EPS: PKR3.12).
Key highlights of 3QFY21 results
Rebar sales clocked in at c.89,000 tons, down c.10% qoq from c.99,000 tons in 2Q. The decrease in volume was led by an increase in rebar prices and uncertainty in the market about future prices (customers were expecting prices to decrease).
Realized Scrap prices increased c.11% qoq to PKR61,947/ton, due to an increase in international scrap prices; however, some of the effect of the price increase was diluted by PKR appreciation. ASTL had to take additional short-term debt of c.PKR2bn due to higher working capital requirements (because of the surge in scrap prices).
In 9MFY21, 32% of the total sales were from Punjab compared to 25% in SPLY, led by increased efforts of the company to gain a stronghold in the North market.
Even though sales volumes declined 9% qoq, revenue increased by 2% during the period because of a 14% increase in rebar prices.
The company has also successfully commenced the commercial operation of a green-field renewable of 4.43MW solar power plant; the positive earnings impact of the plant will be a modest c.PKR75mn pa.
Distribution costs have risen because of a higher proportion of sales in Punjab, as the company has to incur additional freight costs of PKR3,000-5,000 per ton.
Business performance & outlook
As the company recently has been acquired scrap at expensive prices; if scrap prices correct in 4QFY21, the company will have to bear inventory losses.
Rebar prices are expected to increase further as the increase in scrap prices has not yet been fully passed on. Presently, rebar prices are hovering around PKR137,000/ton.
The management does not plan to issue additional equity to retire short-term debt; rather, it will try to increase capacity utilization to increase profits and utilize the additional cash to pay off debt.
ASTL had given guidance of c.115,000 tons of rebar sales for 4QFY21 previously; however, because of the third wave of Covid-19 and long Eid holidays, the company expects sales volume to clock in at c.100,000 tons.
Distribution costs as a percentage of sales is more than in the case of competitors (Mughal and Agha); ASTL is focusing on reducing the ratio in the future.
The company is in constant talks with the government to counter smuggling, reduce under-invoicing by substandard rebar producers, remove the 5% duty on scrap and decrease the 1.5% withholding tax on dealers.
We have a Buy rating on the stock with June 2022 TP of PKR60/sh.