Earnings Report /
Pakistan

Amreli Steel: Q3 FY 20 review: Sequential decline in margins worsens losses

  • ASTL posted NLAT of PKR375mn (LPS: PKR1.26), compared with NLAT of PKR293mn (LPS: PKR0.99) in SPLY

  • The results were below our expectations due to lower volume turnover, low GM’s and higher other expenses

  • We expect the dry spell to continue in Q4 FY 20; Neutral, TP PKR40

Intermarket Securities
27 April 2020

Amreli Steels Ltd (ASTL) posted NLAT of PKR375mn (LPS: PKR1.26), compared to NLAT of PKR293mn (LPS: PKR0.99) in SPLY. This has taken the cumulative 9MFY20 NLAT to PKR688mn (LPS: PKR2.32). The result is weaker than our projected NLAT of PKR182mn (LPS: PKR0.61), where the deviation primarily stems from: (i) lower-than-expected topline potentially because of lower volume sales, (ii) lower GM’s and (iii) significantly higher other expenses.

Key highlights:

  • Revenue clocked in at PKR7.7bn, up by 21% yoy and 3%qoq, primarily on the back of higher prices. It came in lower than we expected due to potentially lower volume sales on account of the Covid-19 lockdown and slowdown in construction activities at the end of the quarter.
  • GM’s came in at 6.41%, below our expectations of 8.59%, in the backdrop of higher input costs (realised scrap prices and power costs) and stiff competition in the local market. This, and local net sales, may indicate greater non-rebar sales than we expected.
  • Distribution expenses rose 39% yoy and 36% qoq due to a spike in transportation costs (axle load) and recent inauguration of warehouses in North. Other expenses took the results by surprise, clocking in at PKR129mn from PKR7mn in 2Q FY 20, possibly due to higher-than-expected exchange losses (PKR/USD depreciated 8% during the quarter).
  • Finance cost came in at PKR583mn, up 57% yoy, but down by 13% qoq, in line with our estimates, due to a dip in short-term borrowings.
  • Although we expected a tax credit, given the negative PBT, the company booked credit of PKR210mn, which surpassed expectations.

This is a very weak result by ASTL. The company has struggled throughout FY 20, due to soaring finance costs in light of multiple expansions carried out by the steel rebar producer. This, coupled with low margins, has led to dismal performance in the past few quarters. Amid the widespread economic slowdown, we expect demand to remain under pressure and we expect the dry spell to continue for another quarter as sales may bear the brunt of the pandemic. We expect the stock to underperform the broader market.