Amreli Steel plans to improve its rebar market in North

October 11, 2019 (MLN): Amreli Steel Limited (ASTL) held its analyst briefing on October 8, 2019, to discuss its FY19 financial performance, along with the company’s future outlook.

To recall, the company announced its financial results on September 12, 2019, as per which its profitability declined by 98% to Rs. 32.8 million in FY19.

Speaking on the above mentioned results, the company’s management attributed the losses to higher administration and distribution costs, power prices, devaluation of PKR against USD, surge in depreciation charges owing to capitalization of plant, higher fixed cost from Dhabeji plant and massive increase in finance cost on the back of increased borrowing and higher interest rate.

During the briefing session, the management informed that the impact of colossal increase in top-line earnings by 85% YoY was offset by higher distribution and finance cost.

On the demand front, the management is expecting to achieve sales target of 350k tons in FY20 by targeting dams and canals projects whereas ungraded players going out of operations at Gadani are likely to seem positive for robust growth of the company.

Shedding some light on the expansion of volumetric sales, the management revealed that the company is planning to improve its rebar market in North from around 2% to 5%, whereas it would maintain its share in South at 24%.

On the supply side, the management opined that the company continues to achieve efficiencies which can turn into substantial savings worth Rs. 1.5 per MT.

The management further apprised that there is minimal threat of new entrants except for Naveena, i.e. an upcoming player with a capacity of about 200K tons, expected to come in 3QFY20.

In terms of pricing, the management of the company apprised that scrap prices have dropped to USD 250 per ton. Therefore, the company will have a lag impact of this declining scrap prices on its profitability due to transportation cycle of three months and that is why company expects prices to be stable around US $280-300 per ton unless exchange rate between PKR and USD shows large fluctuation.

Furthermore, smuggling from Iran continues to be a threat to the company as it disrupts the market prices by offering a huge discounts. Nevertheless, the volume of smuggled goods is quite insignificant.