Aisha Steel Mills Limited

Aisha Steel Mills Limited (PSX: ASL) was set up as a public limited company in 2005 under the repealed Companies Ordinance, 1984. The company has a cold rolling mill complex and a galvanization plant in Karachi where it manufactures and sells cold rolled coils and hot dipped galvanized coils.

Shareholding pattern

As at June 30, 2020, associated companies, undertakings and related parties are the key shareholders of Aisha Steel Mills, holding almost 48 percent shares. Of this, a little over 34 percent shares are held by Arif Habib Equity (Pvt) Limited, and 12 percent in Arif Habib Corporation Limited. Almost 16 percent shares are with the local general public followed by almost 14 percent in insurance companies, takaful, modarabas, and pension funds. The directors, CEO, their spouses and minor children own almost 20 percent shares in the company. A breakdown reveals that Mr. Arif Habib, the Chairman of Aisha Steel Mills, holds the vast majority in this category. The remaining 2 percent shares are with the rest of the shareholder categories.

Historical operational performance

For the last eight years, the company has seen a continuously rising topline, albeit at varying rates, whereas profitability, after dipping in FY15, reached a peak in FY18 and fell again in the last two years.

After witnessing subdued growth of roughly 1 percent in FY17, Aisha Steel Mills saw a 46 percent growth in its topline, whereas volumetrically, sales were higher by 18 percent at 214,316 tons compared to 181,259 tons in FY16. In addition, prices for HRC in USD per ton in the first half of FY17 increased. Moreover, the increase in demand of locally produced automotive units and other household appliances positively impacted the consumption of CRC. Together this helped to improve topline. On the other hand, cost of production was lower in FY17 year on year as its share in revenue, allowing gross margin to improve notably, the effect of which also trickled down to the bottomline. Net margin was recorded at 7.25 percent, whereas in value terms, the company saw a positive bottomline figure for the first time after a period of losses for four consecutive years.

The GDP of the country recorded a growth of 5.4 percent during FY18 with the industrial sector exhibiting a growth of 5.8 percent. For the company, net revenue continued its double-digit growth at 34 percent; volumetrically sales grew marginally by a little over 1 percent. Internationally steel prices were relatively stabled during the year; however, the stability was threatened by the ongoing trade war between China and USA, given that the former is one of the biggest steel producers of the world that was expected to have a negative impact on the local manufacturers. Cost of production on the other hand, was lower to 82.5 percent of revenue, raising gross margins to 17.5 percent. However, the tax expense of Rs 632 million, that was significantly higher than that seen in historically led net margin to reduce, albeit only marginally to almost 7 percent.

GDP growth was nearly half of the target growth rate of 6.2 percent in FY19; industrial growth was also much lower at 1.4 percent compared to the target growth rate of 7.6 percent. For Aisha Steel Mills revenue was higher by 7 percent; this was mostly price driven. Volumes, on the other hand, declined by 5.48 percent, at 205,456 tons. The currency depreciation along with strict policy measures by the government not only dampened demand but also negatively affected the buying capability. The former also led to increase in input costs as cost of production jumped to nearly 92 percent, shrinking gross margin to 8 percent. This was also reflected in the net margin, and it was further exacerbated by the finance expense that made up over 9 percent of revenue. This was due to increased short term borrowings for import of raw materials. Thus, net margin was recorded at 1 percent.

In the backdrop of the events of FY20 that included the trade war between China and US, crash of oil prices, UK’s exit from the European Union, and the Covid-19 pandemic, to name a few, Pakistan’s GDP unsurprisingly stood at a negative 0.38 percent, with industrial sector contracting by 2.64 percent. The international steel industry was also impacted, with demand and hence price fluctuating. HRC price in July 2019 was US$ 500 per ton FOB China that fell to US$ 400 per ton in September and rising again to US$ 500 in January 2020. With the outbreak of the pandemic, prices fell again to US$ 400 levels. For Aisha Steel Mills revenue increased by 47 percent, while sales volumes increased by 26 percent to reach 258,453 tons. However, this did not result in profitability due to higher input costs coupled with currency devaluation. Lower demand did not allow the effect of latter to be passed on to consumers. Cost of production increased to 92 percent, while finance expense exceeded 11 percent of revenue that eventually led to a net loss of Rs 617 million for the year.

Quarterly results and future outlook

Revenue was almost 45 percent higher year on year during 1HFY21 as global economic activities gradually resumed after the strict lock down in majority parts of the world during the outbreak of Covid-19 pandemic that brought the world to a halt. Cost of production was also lower, at almost 82 percent, than that seen in the same period last year. This along with the containment of finance expense owing to lower policy rates by the government helped to improve profitability; net margin was recorded at nearly 10 percent compared to an almost negative 2 percent in 1HFY20.

The company has over the years enhanced its capacities. The company expects local demand to pick up while auto demand has already picked up. In addition, with the growth momentum likely to be seen in the construction industry, demand for CRC may see a positive impact.