International Steels Ltd (ISL) has posted NPAT of PKR57mn (EPS: PKR0.13) in 4QFY22, down a sharp 95%/98% QoQ/YoY. The 4Q result has come significantly lower than our expected EPS of PKR1.21, where deviation was majorly attributed to lower-than-expected sales volume and higher opex. This takes FY22 EPS to PKR12.44, down c.28% YoY. ISL also announced a final cash dividend of PKR4.5/sh, beating our DPS expectation of PKR2.0 (FY22 DPS of PKR6.5/sh).
Net revenue has clocked in at PKR20.9bn, up 11% YoY, lower than our expectation of c.PKR24bn, amid lower volumetric offtake. The weak offtake is possibly attributed to lower production volumes of motorbikes and white goods.
ISL posted gross margin of c.13.7%, down c.10ppt/2ppt YoY/QoQ, surprisingly higher than our expectation of 11.7%. This increase in margins emerged from elevated inventory gains coupled with higher than expected CRC-HRC spreads, in our view.
Distribution and Administration expenses have come in at PKR869mn (+94% YoY) and PKR100mn (+17% YoY), respectively. Higher distribution expenses can be explained by greater transport costs amid rising fuel prices, in our view. We await availability of annual accounts for further clarity.
Finance cost clocked in at PKR417mn, nearly doubled versus the prior year, owed to rising borrowing costs and exchange losses, in our view.
The effective tax rate clocked in at 94% in 4Q mainly due to the one-off super tax. This brings FY22 ETR 32%.
ISL has posted a weak result despite healthy gross margin, which were overshadowed by the sharp decline in volumetric sales and inflated operating cost. The recent PKR volatility and moderate CRC-HRC spreads (currently below US$90/ton) are likely to keep margins in check in the coming quarter, in our view. Despite the weak result, ISL has helped their cause with a healthy final cash dividend of PKR4.5/sh (FY22 PKR6.5/sh) which instills confidence in investors as they have a payout ratio of c.52%, historical payout ratio of 40%.