Earnings Report /
Pakistan

Amreli Steel: FY19 results – Another quarterly loss despite impressive sales growth

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    12 September 2019

    Amreli Steels (ASTL) posted 4QFY19 loss of PKR191mn (LPS: PKR0.64), vs 3QFY19 loss of PKR293mn (LPS: PKR0.99). The result was in-line with our expected LPS of PKR0.66. FY19 profits now stand at a meager PKR33mn (EPS: PKR0.11), down 98%yoy.

    Major highlights for 4QFY19 result include 

    • A massive 54% qoq jump in sales (highest ever in a quarter). While rebar prices were increased and some preemptive buying (to avoid higher sales tax in Jul’19) may have contributed, such an impressive jump indicates improved demand.
    • Gross margins inched up to 5.9% (vs 4.9% in the previous quarter) due to absence of temporary consultancy charge and adequate price increases.
    • Finance cost rose 9%qoq due to higher KIBOR.

    In FY19, profits are almost eroded due to higher raw material prices, consultancy charges and a tough pricing environment in the rebar segment. Higher interest rates and borrowing also contributed to profit decline. Sales, on other hand, grew by 84%yoy as new capacity was added during FY18 end

    Our Jun-20 TP of PKR30/sh implies a Buy stance for ASTL. While we expect another quarterly loss due to increasing interest rates, rise in sales is encouraging while gross margins may hold due to stable PKR/USD. ASTL is down 63% during CY19TD (compared to 15% for the KSE-100) and trades at trailing P/B of 0.43x.