ISL: Making grades

August 25, 2021 (MLN): International Steels Limited (ISL), a market leader in CRC and GI sheets has announced its financial performance for FY21, as per which the company posted an astonishing 15x YoY increase in net profits, clocking in at Rs7.46bn as against the profits of Rs494.8mn in FY20.

This has been reflected in the company’s earnings per share which moved up from Rs1.14.sh to Rs17.61/sh.

In conjunction with the results, the company announced a final cash dividend of Rs7.0 per share i.e., 70% for 4QFY21, taking the total FY21 dividend to Rs10 per share i.e., 100%.

The robust earnings were mainly attributable to strong demand from the automobile and construction sector; High CRC-HRC spread; full impact passed on to consumers amidst rising raw material prices; and inventory gains.

The global steel prices stayed on an uptrend during FY21 with the resumption of the economic and industrial activities, which is primarily driven by strong international demand and rising input costs. The hot-rolled coil prices have more than doubled since the beginning of the year. The price increase has also been supported by the anticipated decision of authorities in China about the withdrawal of rebate on the export of Alloy steel products.

The net revenue of the company jumped by 45%YoY mainly due to a positive shift in economic activities and rebound in sectors like autos, pipes, and appliances.

The Gross margins clocked in at 19.3% for FY21 due to high growth in sales and a significant increase in CRC/HDGC/CCC prices. The surge in CRC prices is due to an increase in HRC prices internationally (average $886/ton).

On the costs front, Distribution and Administration expenses have come in at Rs1bn and Rs361.5mn, up by 19% and 37.5% YoY respectively. Higher distribution expenses can be explained by greater export proceeds in 4Q. Meanwhile, Other expenses also witnessed a steep increase to Rs1.27bn, up by 282% YoY in FY21.

On the contrary, Finance cost declined by 65% YoY to Rs811.9mn, largely attributed to lower borrowing rate and repayment of loans.

Overall, ISL has posted outstanding results, on the back of strong gross margins with high CRC-HRC spreads, and inventory gains. The steel and engineering sector is highly correlated with the country’s GDP growth, as the sector volumes heavily rely on infrastructural projects and other electronics manufacturing. Anticipation of future industrial growth in a post-pandemic economy would bring about massive shifts in steel demand, inducing further construction, digitalization, and automation among other rapid developments. Underpinned by continued robust demand for steel across all sectors, elevated primary margins, combined with ISL’s consistent Capex, the outlook of flat-steel makers remains bullish.

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