Aisha Steel Mills Limited

Aisha Steel Mills Limited (ASML) comes under the umbrella of the Arif Habib Group and is one of the largest private sector investments in the local flat-rolled steel industry. The company was incorporated in Pakistan in 2005 as a public limited company and started its commercial operations in 2012.

Having its production unit strategically located at Port Qasim, Karachi, the company not only caters to the local demand but also exports to many international destinations. The primary export destinations of ASML include North America, Asia, Africa, Europe, and the Middle East.

ASML’s products serve as an important raw material to the automobile, engineering, and appliances industry which in turn produce value-added products for the local and export markets.

ASML’s cold rolling and hot dipped galvanized rolling plant has an annual capacity of 700,000 metric tons and uses state-of-the-art Japanese, German and Austrian machinery to provide the best products to its customers.

Pattern of Shareholding

As of June 30, 2022, ASML has 12,045 ordinary shareholders and 2,391 preferred shareholders holding 924.8 million shares. Associated companies, undertakings, and related parties which include Arif Habib Equity Limited, Arif Habib Corporation Limited, and Fatima Fertilizer Company Limited, etc have the largest stake of 46.75 percent in ASML’s outstanding shares. Directors, their spouses, and minor children form the second biggest category of shareholders holding 20.23 percent of the outstanding share capital. Then comes the local general public owning 17.25 percent of ASML’s shares. Modarbas and Mutual funds have a stake of 3.65 percent followed by Banking, Non-banking, and development financial institutions representing 2.91 percent shareholding. The remaining shares are held by other shareholders such as foreign public, insurance companies, NIT and ICP, etc.

Historical Performance (2018 – 22)

ASML’s top line has been riding an upward trajectory since FY18. Although production and sales volume showed a downtick in FY19 and FY22, stable prices of steel products helped ASML achieve top-line growth in all the years. In FY19, the company undertook massive expansion taking the total production capacity to 700,000 metric tons per annum but, on account of muted demand, ASML couldn’t realize optimum capacity utilization and produced 7 percent less than it did in the previous year.

Despite the revenue growth in all the years under consideration, the margins of the company show a rather ugly trend. Gross profit margin, operating profit margin, and profit before tax margin have been moving south since FY18, only to recover in FY21 and then drop again in FY22.

FY21 appears to be the most fortunate year for ASML as not only did its sales volume grew by around 47 percent year-on-year, its gross profit multiplied by 3.27 times, culminating into a GP margin of 20.29 percent vis-à-vis 7.95 percent in FY20. This was the year when the local as well as global economy was recovering from the shocks of Covid-19 and massive trade and industrial activity took place in almost all the segments of the economy. In FY21, ASML not only performed brilliantly in the local market, its export sales also posted a massive rebound, especially in North American and Asian countries. As a result of export sales, selling and distribution costs also picked up massively, particularly in the category of export clearance charges. This could’ve diluted the operating profit, but a considerable growth in other income on account of exchange gain and a dip in finance cost on account of low discount rate backdrop saved the day and ASML attained an OP margin of 19.21 percent in FY21– the highest since FY17. The bottom line also rebounded from a loss after tax in FY20 to a hefty profit after tax of Rs.6,388 million in FY21.

After bidding farewell to a blissful FY21, came a year full of challenges and shocks. The steel prices touched a record high on the back of the commodity super cycle in the international market. Although the prices were corrected in the latter half of FY21, the sharp depreciation in Pak Rupee gave no respite to the cost of sales, and the GP margin clocked in at 8.50 percent in FY22 falling from the highs of 20.95 percent in FY21.

During FY22, although ASML’s cumulative sales volume dropped by 16 percent year-on-year, export sales showed an improvement, particularly in the North American market. Consequently, export clearance charges grew. This pushed selling and distribution charges up by 76 percent year-on-year in FY22. Other income massively dropped as the exchange gain realized in FY21 on the back of stable currency, vanished in FY22. Then finance cost almost doubled owing to multiple hikes in the discount rate. As a result, the bottom line shrank by 82 percent year-on-year.

Recent Performance (1QFY23)

The country saw its worst in FY22 owing to massive floods in the southern region of the country. This coupled with political instability, power crisis, high discount rate, and sharp depreciation in Pak Rupee halted business activities owing to a decline in purchasing power.

The after-effects of the poor macroeconomic backdrop that began worsening in FY22 can be seen in 1QFY23 where ASML’s sales volume dropped by 68 percent year-on-year to stand at 28,443 tons. The export sales which were growing since FY21 drastically dropped to only 341 tons in 1QFY23 compared to 16,158 tons during the same period last year. Consequently, the top line of ASML couldn’t help but dive by 64 percent year-on-year in 1QFY23.

Despite a sharp reduction of 61 percent in the production volume during 1QFY23, the company couldn’t contain its cost proportionately. GP margin stood at 2.33 percent in 1QFY23 versus 12.26 percent in 1QFY22. This is attributable to a rise in the cost of doing business amidst poor macroeconomic conditions.

While the selling and distribution charges gave some breather as export clearance charges dropped owing to lesser export sales, exorbitant exchange loss, and finance costs pushed the bottom line to the red zone reporting a loss after tax of Rs. 1411.34 million in 1QFY23.

Future Outlook

As the post-flood reconstruction and rehabilitation have commenced the company’s sales have started picking up in the galvanized coil category. However, the cold rolled coil category is yet to recover as the auto industry is facing a severe crisis owing to restrictions on CKD import, high finance costs, and rupee depreciation.

Although import restrictions have been partially eased, dwindling foreign exchange reserves don’t warrant any improvement in CKD imports. Even if the supply-side constraints show some respite, demand-side factors will continue to impede automobile sales as the purchasing power of consumers has considerably dropped owing to high inflation and economic slowdown characterized by downsizing and layoffs. Hence the demand for the cold rolled coil category is anticipated to remain muted in the upcoming quarters of FY23.