Earnings Report /
Pakistan

International Steels Ltd: Q1 FY 20 results: Higher finance cost leads to earnings miss

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    15 October 2019

    International Steels Ltd (ISL) posted Q1 FY 20 NPAT of PKR348mn (EPS: PKR0.80), down 59% yoy but up 14% qoq. This came in below our expected NPAT of PKR441mn (EPS: PKR1.01), due to a significantly higher finance cost. On pre-tax basis, profits have declined on quarterly basis as well, by 65%.

    Key highlights

    • Revenues declined by 21% qoq, in line with expectations due to decline in automobile production and negative impact of SRO-641 imposed conditions on sales to pipe-making industry. Sales improved 3% yoy due to price increases despite volume decline.
    • Gross margins of 10.7% were also in line, declining both on yoy/qoq basis due to PKR depreciation and higher gas prices (used for power generation).
    • Finance cost grew by 2.3x qoq to PKR667mn, coming in much higher than our estimate, even though increase in total borrowings as per Jun’19 accounts was relatively modest. We await further clarity in this regard.
    • Positive tax of PKR47mn, potentially due to some unutilised credit or previous year adjustment.

    Our Jun’20 TP of ISL is PKR50/sh, which implies a Buy stance. Despite a tough macro-economic backdrop, decline in international HRC prices and stable PKR against US$ should help in margin accretion, in our view. Over the medium term, prospects for ISL are encouraging due to duty protection and a diverse industrial exposure.