Amreli Steels Limited (PSX: ASTL) was incorporated in Pakistan as a private limited company in 1984 and was converted into a public company in 2009. The principal activity of ASTL is the manufacturing and sale of steel bars and billets.
Pattern of Shareholding
As of June 30, 2023, ASTL has a total of 297.011 million shares outstanding which are held by 10,306 shareholders. Directors, their spouses, and minor children collectively hold 56.47 percent shares of the company to qualify as the major shareholders of ASTL followed by associated companies, undertakings, and related parties holding 18.76 percent shares. The local general public has a stake of 14.93 percent in ASTL. Foreign general public accounts for 1.86 percent shares of ASTL while Banks, DFIs, and NBFIs hold 1.33 percent shares. The remaining shares are held by other categories of shareholders.
Performance Trail (2019-23)
ASTL’s topline slid twice over the period under consideration i.e. in 2020 and 2023. Its bottom line dropped until 2020 when it recorded a net loss. ASTL’s bottom line recovered from net loss in 2021. However, the downward journey of ASTL’s bottom line resumed in 2022 which ended up in net loss in 2023. The margins tell a similar tale as the bottom line with the exception of 2023 where ASTL’s gross and operating margins markedly improved. It is to be noted that the rich bottom line and margins recorded by ASTL in 2018 seem to be things of the past as similar levels haven’t been regained thereafter. The detailed performance review of the period under consideration is given below.
In 2019, ASTL’s sales posted a stunning year-on-year growth of 84.5 percent. The growth was led by both volume and price. The company sold 277,416 tons of prime bars in 2019 which is 61 percent higher than the sales volume recorded in 2018. However, the high cost of sales which mainly came on the back of Pak Rupee depreciation couldn’t be completely passed on to the customers. This thinned down the gross profit of the company by 12.14 percent in 2019. GP margin also shrank from 17.8 percent in 2018 to 8.5 percent in 2019. Distribution expenses jumped up by 85.75 percent year-on-year in 2019 on account of higher advertising and sales promotion coupled with elevated carriage and transport charges as well as salaries and wages. Administrative expenses also grew by 15 percent year-on-year in 2019 due to elevated payroll expenses as the company greatly inducted new employees to drive its workforce up from 815 employees in 2018 to 1388 employees in 2019. Other expenses considerably plunged as ASTL didn’t book any provisioning for WWF and WPPF in 2019. Other income dropped by 68.52 percent in 2019 because of the high base effect as there were some liabilities written back in 2018. High operating expenses put a further dent on the performance of ASTL and its operating profit slid by 36.11 percent year-on-year in 2019 with an OP margin of 4.18 percent versus 12 percent in 2018. Finance cost was given another major blow as it grew by 165 percent in 2019 due to a rise in discount rate coupled with increased borrowings during the year. In 2019, ASTL’s gearing ratio escalated to 56 percent from 49 percent in the previous year. The bottom line slid by 97.93 percent year-on-year in 2019 to clock in at Rs.32.82 million with EPS of Rs.0.11 versus Rs.5.34 in 2018. NP margin clocked in at 0.11 percent in 2019 versus 10.23 percent in the previous year.
In 2020, ASTL’s topline took a 7.22 percent year-on-year plunge as all the businesses including ASTL’s operations were shut down for two months due to COVID-19. In 2020, the company’s sales volume of prime bars shrank by 1.81 percent to clock in at 272,382 tons. The gross profit of ASTL nosedived by 18.48 percent year-on-year in 2020 with a GP margin of 7.45 percent as the company suffered from fuel charge adjustment (FCA) and withdrawal of Industrial Support Package Adjustment (ISPA) which put immense pressure on the cost of sales. Distribution expense remained in check during the year due to low advertisement and promotion while admin expense posted a 9 percent increase on account of higher payroll expense as a number of employees further increased to clock in at 1398 employees in 2020. The company also booked a 367.75 percent higher allowance for ECL in 2020. Other expenses also gave a cold shoulder and magnified by 433.15 percent in 2020 on account of exorbitant exchange loss due to Pak Rupee depreciation. Other income grew by 15 percent in 2020 on account of higher profit on TDRs and government grants received during the year. ASTL’s operating profit further narrowed by 56.59 percent year-on-year in 2020 with a skimpy OP margin of 1.96 percent. Finance costs also hit hard as they blew up by 82.15 percent year-on-year in 2020. This came on the back of an increase in discount rate coupled with higher borrowings which pushed up ASTL’s gearing ratio to 67 percent in 2020. Higher finance costs couldn’t be absorbed by the thin operating profit and ultimately produced a negative bottom line of Rs.1126.62 million in 2020. The loss per share stood at Rs. 3.79 in 2020.
The lackluster performance posted by ASTL in 2020 was reversed in 2021 as its topline grew by a remarkable 47.81 percent year-on-year in 2021. This came on the back of a robust 33 percent increase in offtake which stood at 363,949 tons in 2021. Radical increase in the cost of scrap and cost of electricity which constituted 79 percent of ASTL’s cost of sales wreaked havoc on its cost of sales. However, it was, to a great extent, passed on to the customers which resulted in a striking 129.9 percent year-on-year increase in gross profit with a GP margin of 11.6 percent recorded by ASTL in 2021. Higher freight charges as well as advertisement and sales promotion charges inflated the distribution cost by 38.64 percent in 2021. Admin expense also soared by 10.18 percent in 2021 on the back of inflation and human resource induction to support the company’s extended operations. During 2021, the company booked reversals on expected credit losses due to recoveries of due receivables. Higher provisioning for WWF and WPPF pushed other expenses up by 31.15 percent during the year, however, other income improved by 195 percent year-on-year on the back of gain on disposal of fixed assets as well as receipt of government grant in 2021. ASTL’s operating profit posted a staggering increase of 480.53 percent in 2021 with OP margin climbing up to 7.7 percent. Finance costs also lent a helping hand and tapered off by 29.2 percent year-on-year in 2021 due to a reduction in the discount rate and also because of lesser borrowings which pushed ASTL’s gearing ratio down to 60 percent in 2021. ASTL recorded a net profit of Rs.1368.26 million in 2021 with EPS of Rs.4.61. NP margin clocked in at 3.5 percent in 2021.
In 2022, while ASTL’s offtake posted a decline of 0.38 percent, its topline grew by 48.36 percent year-on-year due to upward price revisions. While gross profit increased by 42.92 percent year-on-year in 2022, GP margin ticked down to 11.16 percent on the back of a huge rise in the cost of electricity and scrap which was further exacerbated by Pak Rupee depreciation. Inflationary pressure coupled with higher freight, advertisement, bundling, and special order charges as well as salaries and wages drove up the operating expenses. Higher profit-related provisioning resulted in 50.62 percent taller than other expenses in 2022. Operating profit grew by 45.58 percent year-on-year in 2022 with a slight downtick in OP margin which clocked in at 7.54 percent in 2022. Multiple upward revisions in the discount rate coupled with increased working capital facilities availed during the year pushed up the finance cost by 42 percent year-on-year in 2022. ASTL’s gearing ratio climbed up to 63 percent in 2022. The bottom line nosedived by 3.12 percent in 2022 to clock in at Rs1325.52 million 2022 with EPS of Rs.4.46 and NP margin of 2.3 percent.
In 2023, ASTL registered a topline drop of 21.81 percent year-on-year on the back of low volume as floods hit the country during the first quarter of FY23 which hampered the construction activity in the country. Weak aggregate demand due to political and economic instability and the shrinking purchasing power of customers also wreaked havoc on the company’s sales volume. ASTL sold 218,279 metric tons of prime rebars in 2023, down 39.63 percent year-on-year. Record high inflation coupled with low off-take cascaded down into a gross profit slide of 8.15 percent year-on-year in 2023. However, as the company passed on the impact of cost hikes to its customers, its GP margin improved to 13.11 percent in 2023. Reduced advertising expenditures resulted in a 16.2 percent lower distribution expense incurred by ASTL in 2023. However, administrative expenses inched up by 2.06 percent in 2023 on account of higher depreciation and vehicle fuel costs. ASTL booked a hefty allowance of Rs.119.60 million on expected credit losses, up 2210.26 percent year-on-year in 2023 as a slowdown in economic activity lately rendered many businesses incapable of meeting their financial commitments. Other expenses dropped by 54.89 percent in 2023 due to low provisioning for WWF and WPPF. Other income also slid by 66 percent in 2023 due to reversals against security deposits considered doubtful booked in the previous year. Operating profit plunged by 8.62 percent year-on-year in 2023 while OP margin inched up to 8.81 percent. Finance cost grew by a massive 74.83 percent in 2023 due to a record-high discount rate while ASTL’s net borrowings shrank during the year, as evident in its gearing ratio of 61 percent in 2023. An exorbitant hike in finance cost wiped off ASTL’s operating profit and resulted in a net loss of Rs.678.44 million in 2023 with a loss per share of Rs.2.28.
Recent Performance (1HFY24)
ASTL’s topline plummeted by 3.39 percent in 1HFY24 due to diminished investment in infrastructure projects owing to unparalleled hikes in discount rates and energy prices, high inflation, political and economic unrest, and shrunken pockets of customers. Due to cost control measures put in place by the company and its ability to share the onus of cost hikes with its customers, ASTL was able to drive up its gross profit by 1.68 percent in 1HFY24. GP margin also slightly improved from 10.61 percent in 1HFY23 to 11.16 percent in 1HFY24. Inflationary pressure resulted in a 10.9 percent and 31.93 percent escalation in distribution and administrative expenses respectively in 1HFY24. ASTL booked 44.48 percent lesser provision for ECL in 1HFY24. 475.89 percent higher other expenses incurred during the period were the result of exorbitant exchange loss. All these factors drove down ASTL’s operating profit by 13.17 percent in 1HFY24 with OP margin diving down to 6.02 percent from 6.69 percent in 1HFY24. Finance costs mounted by 15.53 percent in 1HFY24 due to an unprecedented level of discount rate. This was despite the fact that ASTL reduced its short-term borrowings during the period by tightening its receivables and reducing inventory levels. The company posted a net loss of Rs.634.34 million in 1HFY24, up 243.36 percent with a loss per share of Rs.2.14 versus a loss per share of Rs.0.62 in 1HFY23.
Future Outlook
Dwindling foreign exchange reserves of the country and fiscal imbalances warrant no significant acceleration in the infrastructure-related activities in the country in the near term.
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