Analyst Briefing: ASTL targeting 55% to 65% capacity utilization for FY21

November 25, 2020 (MLN): Amreli Steels Limited (ASTL) conducted its analyst briefing session yesterday where the management discussed Company’s latest financial performance as well as future roadmap.

To recall, ASTL reported Rs 1.12 billion worth of net losses for FY20, against meagre profits of Rs 32.82 million earned in FY19.

As per the management, the losses were mainly attributable to COVID-19 outbreak resulting in the closure of business for 60 days, overall economic contraction started in 2019 and non-utilization of enhanced capacity (45% utilization).

Discussing about company’s business expansion, the management explained that current capacity utilization is 55% and their target capacity utilization for SITE plant is 50% – 55% whereas, for Dhabeji mill it is 60% – 65%

According to the key takeaways of the briefing covered by Taurus Securities, the management stated that the demand of steel is highly correlated with the demand of cement. It is estimated that the 7%-8% demand growth in cement will drive similar demand growth for the steel sector too, this financial year.

As the Steel industry is one of the most favored in current times in context of recent projects and CPEC, the company is expecting overall steel demand of 5.56 Mt, a report by Taurus Securities highlighted.

During the briefing session, the management said that the current PKR/USD 159.24 rate is favorable for ASTL. However, they can still absorb up to PKR/USD 168.

Commenting on Yield, the management informed that Yield of scrap to billet is 94% to 95%, whereas, the yield of billet to rebar is 95% along with 2% burning loss. Furthermore, the yield is highly dependent on the technology used in the process, the management added.

With regards to market share, the management underscored that ASTL holds an overall market share of 7% in the Country.  Region-wise, current concentration in South and North zones is 70% and 30%, respectively with 30% market share accounts for rebar sales in South, the report cited.

Speaking on business diversification, the Company stated that they are not planning to step into girder market as their major operations are being run in the South region where the demand of girder is very low.

Furthermore, on the back of company’s effort for boosting efficiencies and significant utilization of their enhanced capacities, the management is expecting to generate gross margins of 10% to 11% going forward, the report said.

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