Earnings Report /
Pakistan

International Steels Ltd: 4QFY22 review – Healthy payout despite lower earnings

  • ISL has posted NPAT of PKR57mn (EPS: PKR0.13) in 4QFY22, down a sharp 95%/98% QoQ/YoY.

  • deviation was majorly attributed to lower-than-expected sales volume and higher opex.

  • ISL also announced a final cash dividend of PKR4.5/sh (FY22 DPS of PKR6.5/sh)

Intermarket Securities
19 August 2022

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). 

Key highlights:

  • 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%.