Earnings Report /
Pakistan

Amreli Steel: 3QFY22 review – depleted margins hurt profitability

  • ASTL has posted NPAT of PKR531mn (EPS: PKR1.79) for 3QFY22, which is up 6% yoy but down c.12% qoq

  • The 3Q result is lower beat our EPS of PKR2.09, variance emanated from lower-than-expected gross margins

  • Revenue has clocked in at c.PKR15.9bn (up c.63% yoy), beating our expected revenue of PKR14.3bn

Intermarket Securities
21 April 2022

ASTL has posted NPAT of PKR531mn (EPS: PKR1.79) for 3QFY22, which is up 6% yoy but down c.12% qoq. This has taken 9MFY22 NPAT to PKR1.8bn (EPS: PKR6.18), almost double the NPAT of PKR9.29mn (EPS: PKR3.12) in SPLY. The 3Q result has come in lower than our projected EPS of PKR2.09, where the variance emanated from lower-than-expected gross margins.

Key takeaways from 3QFY22 result include:

  • Revenue has clocked in at c.PKR15.9bn (up c.63% yoy), beating our expected revenue of PKR14.3bn, where the growth is led by (i) higher rebar prices which increased by c.44% yoy, and (ii) higher volumes (4% qoq / 10% yoy). We estimate 3Q volumes to have clocked in at around 97,000 tons, against our expected volumes of c.88,000 tons.  

  • ASTL has posted gross margins of 10.7%, down a sharp c.3ppt yoy and c.2ppt qoq, below our expectation of 12.4%. The sequential decline in margins can be attributed to (i) procurement of costlier raw materials, c.4% PKR slippage, and higher energy costs, in our view.

  • Distribution and Admin expenses clocked in at PKR308mn and PKR157mn, up 43% and 17% yoy, respectively. The rise in the former is likely due to rising transport costs coupled with the increase in sales volume growth, in our view. 

  • Finance cost has come in at PKR650mn, up c.65% yoy (up c.40% qoq), likely due to a rise in short term debt (in tandem with sales), as well as borrowing rates (policy rate increased by 250bps in 2QFY22 to 9.75% from 12.25% last year). 

This is a weak result from ASTL, despite healthy volumetric offtake in the backdrop of subdued construction activity. Gross margins are likely to remain at similar levels in the next quarter due to, PKR volatility and elevated input costs, in our view. However, the recent rise in rebar prices may cushion the decline in margins in the coming quarters, in our view. Moreover, an uptick in construction activity amid sharp Mera Ghar Mera Pakistan loan disbursements, in the last quarter of FY22, can potentially improve rebar sales further. We have a Buy rating on the stock with a June 2023 TP of PKR40.0/sh.