Amreli Steels Limited (ASTL) posted a net profit of Rs1.34billion (EPS: Rs4.61) during FY21, a turnaround from the same period last year when it incurred a net loss of Rs1.24bn (LPS: Rs4.18).
During FY21, the company witnessed robust growth in topline as it went up by 48%YoY to Rs39bn due to a massive jump in offtakes. The sales quantity increased by 33%YoY while prices surged by 11%YoY due to an increase in international scrap prices.
The volumetric growth was also attributed to govt’s incentives and SBP’s measures that include subsidized housing loans, increased PSDP spending, construction package and lower interest rate regime that improved investors’ confidence and injected liquidity in the economy.
The province-wise sales depict the share of north increased to 32% from 28% in the previous year, while the share of the south in total sales declined to 58% from 63% in SPLY. Going forward, the management expects the contribution to sales will reach 50:50 in North/South.
ASTL is targeting to utilize 75% of the Dhabeji plant in FY22 as the company was getting an 88% tax exemption from the government.
The management believes that scrap prices are likely to remain elevated for the remainder of CY21, where a reduction seems unlikely due to the recent infrastructure plan announced by the US (US$1trn) and restraints on exports out of China, exacerbated by the container shortages in various major ports across Asia, according to the key takeaways covered by Intermarket Securities (IMS).
Local rebar prices are expected to increase further as the increase in global scrap prices has not yet been fully passed on. Presently, rebar prices are hovering around PKR165,000/ton. The company expects gross margins will improve in the coming quarters of FY22 due to the hike of local rebar prices amid High scrap prices and rising electricity prices.
Given the present demand outlook, the management is targeting rebar sales of 415,000-425,000 tons in FY22 vs. total 362,949 tons in FY21, while increasing the share of sales to Punjab to 50% of overall sales from 28% presently, due to the positive demand outlook in North, Abdul Ghani, Research Analyst at IMS highlighted.
The company is in constant talks with the government to reconsider the FY22 Budget measure which changed the FED regime to GST regime for FATA/PATA regions (which increases competition for the listed companies including ASTL). The government has ensured the long steel industry that strict monitoring will take place with check posts to ensure rebar produced in the FATA/PATA regions are made available in the North markets, he added.
With regards to dropping inventory levels, the management elucidated that they are struggling with low inventory levels which had caused them to discontinue bookings twice in Aug’21 & Jul’21. Nevertheless, the whole country is facing a similar situation due to expensive scrap prices and high freight rates, a note by Taurus Securities said.