October 06, 2020 (MLN): International Steels Limited (ISL) recently conducted its investors' briefing session to discuss the FY20 result along with industry dynamics and future outlook.
The FY20 seemed challenging for ISL due to a slowdown in economic activity, as its net profits after tax for the year deteriorated by 81% YoY to Rs 494.85 million compared to Rs 2.66 billion reported in FY19. This was reflected in the company’s earnings per share which also declined by the same percentage from Rs 6.12 last year to Rs 1.14.
The decline in profitability of the company was attributable to an economic slowdown and cost pressures due to rupee devaluation, further marred by lockdown amid COVID-19 in the last quarter.
The company witnessed a drop of revenue of 16% YoY owing to lower sales volume as ISL sold 418,000 tons of flat steel against 525,000 tons SPLY. The exports for the year grew by 1.3x to reach the highest ever amounting to Rs 9 billion and now the company exports to 20 countries.
Giving its insight on the matter, the management said the company is aggressively penetrating new markets (albeit exports are low margin relative to the domestic market). According to Intermarket Securities, the company is expecting to reach utilization levels of 50-55% during FY21 (c. 500-550k tons), considering ISL cannot sell directly to the pipe-making industry anymore (as per SRO641), which includes INIL.
Commenting on the growth of the company on the domestic front, the management expects the domestic steel sector to increase by 10% per annum (reaching 1.25mn tons by FY23). CRC is being imported by the auto sector (4-wheeler) based on SRO655, which allows duty-free imports. This segment cannot be substituted by domestic CRC due to higher duties on HRC import by ISL and variation in quality, the research by Intermarket said.
Expanding its footprint by setting up a service center, ISL will cater to automakers and other industries located within proximity. It is expected to add value by providing various services to its customers including cut to length, slitting, profiling). The company currently provides flat steel for the majority of the parts used in 2/3 wheelers and a few for tractors and buses. Other major steel consumers of the company are agri appliances, construction, drums, etc.
According to the research by Insights Securities, ISL is evaluating to install a Hot-rolled Coil (HRC) plant for the last 4 years, which is contingent upon government decision to protect HRC through import duties. The total project cost is estimated at USD 350 million.
The management expects that High HRC prices due to strong demand from China as Global HRC prices are showing strength after remaining fragile since Sino American trade tussle, Insights Securities added.
Regarding GIDC, the company has accounted for PKR 1.4 billion since 2015 which has to paid in 24 equal installments. However, ISL is not providing GIDC since Jul’ 20 in light of the Supreme Court decision.
According to the management, the demand outlook remains uncertain, as demand has not picked up globally and the possibility of a second wave is looming globally. Going forward, moreover, countrywide gas shortage for power generation might also act as a potential threat.
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