International Steel Limited

International Steels Limited (ISL), a subsidiary of International Industries Limited (IIL), was incorporated in 2007 with the vision to be the foremost manufacturer of flat steel products in Pakistan. At that time, ISL was the largest private investor in the value-added flat-rolled and coated steel industry in the country.
ISL is the first large-scale steel manufacturing unit with a capacity of 250,000 tons per annum out of which up to 150,000 tons goes into Hot Dipped Galvanised Coils (HDGC). The company markets its steel sheets to industries for applications that require excellent corrosion resistance and for exposed outdoor applications. The remaining cold rolled, and metal coated steel sheets are conforming to international standards (ASTM, JIS, etc) from imported hot-rolled coils. Over the last two years, ISL has aligned its industrial footprint with the market conditions and continues to upgrade its plants with the aim of improving product quality and cost competitiveness.
FY 14 PERFORMANCE: International Steels Limited (ISL) has seen robust growth in its top line over the last four years. The company has come a long way from producing 166,826 tons of steel in FY12 to 281,772 tons of steel in FY14. During FY14, the company's production of the 4 Hi Mill exceeded 281,000 tons, which is well beyond the initially envisaged capacity of 250,000 tons. In terms of sale growth, the company sold 257,562 tons of steel in FY 14 which is 18 percent higher than 217,420 tons in FY13. The company has seen nearly 60 percent increases from FY12. The volume sold in FY14 comprised of 162,000 MT of Galvanised, 95,000 MT of Cold Rolled and 13,000 MT of miscellaneous products.
In terms of rupees, the company clocked in Rs 21,280 million, which is a growth of 21 percent, year-on-year in FY14. Galvanised Coil is the major contributor, and it contributed 63 percent to the net sales, and Bi-Product Resettable Scrap contributed the least. The company has given credit for sales growth to its distribution network. Over the years, ISL has strengthened its dealer network which has helped the company tremendously, to bring the company's products to smaller commercial stockists as well as industrial end-consumers.
Overall, the steel sector of Pakistan is facing significant pressure on its margins due to under invoicing and secondary materials being imported into the country. During, the second half of the financial year, the company also faced the impact of lower PKR / USD parity. However, in terms of net sales, there is a decrease of 200 bps in the cost of good sales. However, weak demand in the international market due to a slowdown of Chinese economy and structural issues of the emerging economies led to softening of international steel prices. All this has helped the company report 200 bps increase in its gross profit margin.
NINE-MONTH PERFORMANCE: International Steels Limited is presenting its FY15 result today. But, the result of last nine months is not showing a pleasant picture for the steel company. The company lost 15 percent in its top line year-on-year. Indirectly the company has blamed largely on the import of steel from China because the global steel prices are on a decline and China produces 50 percent of world steel output and 70 percent of total steel imports are from China. Also, the government has imposed 5 percent import duty on HRC, the raw material for producing the steel. The company witnessed a 4 percent increase in its cost of doing business in terms of net sales.
OUTLOOK: It is true that ISL is facing significant problems at the moment, but the future outlook is certainly ravishing for the steel producer. The company is in the process of extending its capacity to produce cold roll coils by 500,000 tons while for galvanised pipes capacity enhanced to 400,000 tons and this expansion is near completion stages. After this development, International Steel Limited (ISL) will become a leader in CRC industry as currently they were contributing around 280,000 tons of CRC, this expansion will allow them to capture the market share. The company will also take advantage of Pak-China corridor project and other construction projects in the country and with added benefits of expansion the current industry dynamics will support the entity.

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International Steel Limited

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Rs (mn)                               9MFY14      9MFY15         chg

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Sales - Net                           15,169      12,834        -15%

Cost of sales                         13,527      11,885        -12%

Gross profit                           1,643         949        -42%

Administrative expenses                  102         113         11%

Selling and distribution expenses        104         135         30%

Financial charges                        737         831         13%

Other operating charges                   93           2        -98%

Other income                              47         114        141%

(Loss) / Profit before taxation          655        (18)       -103%

Taxation - net                           109          17        -84%

Net Profit / Loss                        546        -996       -282%

EPS                                     1.26           0           _

Gross margin ratio                       11%          7%        Down

                                                             400 bps

Net margin ratio                          4%         -8%        Down

                                                             400 bps

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