Earnings Report /
Pakistan

International Steels Ltd: Q3 FY 20 review: Higher earnings on the back of improved margins

  • ISL posted NPAT of PKR190mn (EPS: PKR0.44) for Q3 FY 20 vs PKR611mn (EPS: PKR1.41) in Q3 FY 19, down 69% yoy

  • Gross margins in Q3 at 9% compared with 7% in Q2; maintain Neutral, TP PKR62

  • Amid the lockdown-led economic slowdown, we expect local demand to remain under pressure during Q4 FY 20

Intermarket Securities
15 April 2020

International Steels Ltd (ISL) posted NPAT of PKR190mn (EPS: PKR0.44) for 3QFY20, compared to NPAT of PKR611mn (EPS: PKR1.41) in the same period last year, down 69% yoy. This has taken the 9MFY20 NPAT to PKR656mn (EPS: PKR1.51), down 72% yoy. On a sequential basis, however, 3Q earnings have improved by 61%.

Key highlights:

  • ISL posted net sales of PKR13.1bn, down 5% qoq (down 17% yoy), partly due to higher CRC and HDGC exports, where international prices and margins are presently lower than local prevailing prices. 3Q typically has the highest volumes during the year; but local sales would have been impacted by the lockdown.
  • Gross margins in 3Q clocked in at 9% compared to 7% in 2Q, owing to lower input costs (down 7% qoq) primarily on the back of declining HRC prices (major raw material and input cost).
  • Selling & Distribution expenses corroborate the increase in exports (as a portion of overall sales), rising by 27% yoy and 47% qoq (out of line of the trend in Revenue).
  • Finance cost declined by 4% yoy and 41% qoq to PKR401mn, due to a dip in short term borrowings which stood at c.PKR13bn at the end of 2QFY20, down from PKR19bn at end-1QFY20. This is an encouraging sign indicating reduced working capital amid rising sales.
  • Effective tax rate in 3Q is the normal 29%.

Amid the lockdown-led economic slowdown, we expect local demand to remain under pressure during 4QFY20 where exports may also compress given the lockdown conditions globally.