The company was incorporated as a private limited company in 2013 and then converted into a public listed company is 2015. The principal activity of the company is the manufacturing and sale of steel bars, wire rods and billets.
Pattern of Shareholding
As of June 30, 2023, AGHA has an outstanding share capital of 604.88 million shares which are held by 5,711 shareholders. Directors, their spouse and minor children hold the major stake of 61.95 percent in the company followed by local general public holding 27.73 percent shares. Insurance companies own 5.01 percent of the company’s shares while banks, DFIs and NBFIs account for 2.85 percent shares. The remaining ownership is distributed among other categories of shareholders.
Historical Performance (2019-23)
Barring year-on-year plunge in 2023, AGHA’s top line has shown an upward trajectory in the remaining years under consideration. Conversely, its bottomline registered a decline in 2022 and 2023. AGHA’s margins witnessed sound recovery in 2020. However, in the subsequent year, gross margin nosedived while operating and net margin continued to pick up. In 2022 and 2023, operating and net margins went downhill, while gross margin slipped in 2022 and then rebounded thereafter. The detailed performance review of each of the years under consideration is given below.
In 2020, AGHA’s topline posted a year-on-year rise of 28 percent which was mainly on account of upward revision in the prices of rebars and billets. The company also incorporated the change in its sales tax regime from special procedures to VAT mode. This is evident in AGHA’s gross registering a rigorous rebound of 67 percent in its gross profit with GP margin climbing up to 25.3 percent in 2020 from 19.4 percent in 2019. Operating expense escalated by 46 percent year-on-year in 2020 due to massive hike in payroll expense as the number of employees grew from 247 in 2019 to 258 in 2020. Advertisement and promotion budget, software development and consultancy charges and freight also played their role in driving up the operating expense in 2020. Finance cost also surged by 50 percent in 2020 due to high discount rate for most part of the year. Yet, AGHA was able to register 114 percent higher operating profit in 2020 with OP margin flying up to 9.02 percent from 5.4 percent in 2019. Other expense multiplied by 230 percent in 2020 due to higher provisioning for WWF and WPPF as well as impairment loss on trade receivables. However, it was offset by 283 percent bigger other income earned by the company in 2020 on account of high mark-up on loans to associates, effect of discounting of supplier credit, exchange gain as well as sales tax input. As a consequence, AGHA posted a net profit of Rs1235.59 million in 2020, up 61 percent year-on-year. This translated into EPS of Rs2.96 in 2020 from Rs2.13 in 2019. NP margin also boosted from 7.3 percent in 2019 to 9.2 percent in 2020.
In 2021, Pakistan’s economy showed signs of recovery post the period of slowdown owing to Covid-19. Net sales grew by an impressive 48 percent year-on-year on account of real estate boom. In order to meet the rising demand, the company also enhanced its production capacity of Billets from 250,000 MT in 2020 to 450,000 MT in 2021. It also expanded its rebars production capacity from 150,000 MT in 2020 to 250,000 MT in 2021. The company also widened its sales network which enabled it to grab a greater share of the market despite the entry of new market players. Gross profit rose by 33 percent in 2021, however, GP margin sank as China, the top producer of steel withdrew 13.5 percent of tax rebate to its steel industry which resulted in sharp rise in steel prices. This coupled with the spike in electricity tariff squeezed AGHA’s GP margin to 22.67 percent in 2021. Operating expense mounted by 21 percent year-on-year in 2021 owing to high payroll expense, fee & subscription charges, freight charges and augmented advertisement & promotion budget to attain greater market penetration. Finance cost played a vital role in giving a boost to the bottomline. Finance cost decreased by 17 percent year-on-year in FY21 owing to stable exchange rate and low discount rate. Operating profit improved by 107 percent in 2021 with OP margin climbing up to 12.65 percent. Other income slipped by 18 percent year-on-year in 2021 as markup on loan to associate companies which was the major head of “other income” until FY20 faded away in FY21 owing to monetary easing. Other expense also mounted by 72 percent in 2021 on account of higher provisioning for WWF and WPPF as well as impairment loss on trade receivables. AGHA was able to attain 65 percent bigger net profit it 2021 which clocked in at Rs.2036 million with EPS of Rs.3.62 and NP margin of 10.25 percent.
2022 was a rollercoaster ride for the cement industry. International steel prices reached an unsurpassed level of $1100 and then collapsed by 40 percent. The prices of major raw materials such as iron ore and coal also showed significant downward adjustments after peaking to an unparalleled level. This was because of the demand uncertainty coming on the back of Russia-Ukraine conflict and a general economic slowdown. Talking about the local scenario, energy slippages, high inflation, multiple discount rate hikes, dwindling foreign exchange reserves and sharp depreciation of Pak Rupee as well as devastating floods in the southern region of the country, the demand from the public and private sector remained subdued. In 2022, AGHA’s net sales went up by 29 percent year-on-year in 2022. The company started commercial production of liquid gases which might have produced its effect on the topline. Upward revision in the prices of billets and rebars also played its role in driving the net sales up. However, looking at the plant operations reveal that the production of both billets and rebars slid during the year which gives a hint that sales volume remained lackluster in 2022. High international prices of raw material for the most of the year coupled with Pak rupee depreciation proved to be a double whammy for AGHA, shrinking its gross margin in 2022, despite 22 percent year-on-year uptick in gross profit. Operating expense spiked by 18 percent year-on-year in 2022 on account of higher payroll expense as AGHA’s workforce widened from 310 employees in 2021 to 390 in 2022. Higher travelling and conveyance charges, software development, charity, advertisement & promotion, freight and brokerage charges also pushed up the operating expense in 2022. Finance cost surged by 52 percent year-on-year on account of high discount rate. This pushed the OP margin down to 10.4 percent in 2022. Other expense gave another major blow to the bottomline and grew by 2.4 times in FY22 on account of exchange loss and impairment loss on trade receivables. Other income lent a helping hand to the bottomline as the company made massive profit from its air separation unit installed from IPO proceeds of 2021. The bottomline of AGHA shrank by 9 percent year-on-year to clock in at Rs1854.77 million with the lowest NP margin of 7.23 percent witnessed by the company in the last five years. EPS also dived down to Rs.3.07 in 2022.
Recent Performance (2023)
During 2023, AGHA’s topline contracted by 20 percent year-on-year on account of depressed market backdrop due to devastating floods in the major region of the country, extended political uncertainty and high inflation which put brakes on the purchasing power of the consumer. High discount rate, political and economic headwinds, narrowing purchasing power of consumers and sky-rocketed inflation and imposition of new taxes kept the potential investors shy of the real estate investments, resulting in subdued demand of steel and allied industries in 2023. PSDP disbursements were also slow on account of gloomy political backdrop and widening fiscal slippages. Depressed demand of steel is also evident in the thinning production volumes of both rebars and billets in 2023. During the year, AGHA produced 117,887 M tons of billets, down 30 percent year-on-year. Production of rebars also plummeted to 102,374 M tons, down 29 percent year-on-year. While production of liquid gases improved by 5.7 percent year-on-year to clock in at 10.363 million cubic meters, it couldn’t produce much of a difference in AGHA’s topline in 2023. Due to stumbled business activity in 2023, cost of sales also dwindled, the result of which was an uptick in GP margin which clocked in at 23.42 percent in 2023. However, gross profit narrowed down by 12 percent in 2023. Operating expense eroded by 8 percent on account of lower payroll expense as number of employees reduced from 395 in 2022 to 350 in 2023. Moreover, lower legal & professional charges, software development expense, advertisement & promotion as well as brokerage charges also contributed to lower operating expense in 2023. Finance cost posted a year-on-year spike of 50 percent in 2023. This took its toll on the OP margin which drastically fell to 4.76 percent in 2023. Other income rose by 16 percent year-on-year in 2023 due to augmented profit from air separation unit and higher mark-up on loans to associates. Other expense also buttressed the bottomline as it dropped by 76 percent due to lesser profit related provisioning and lower impairment loss on trade receivables. Despite keeping a check on its cost and expenses, AGHA couldn’t guard its bottomline which registered 51 percent year-on-year downfall in 2023 to clock in at Rs.904.90 million with EPS of Rs.1.5 and NP margin of 4.4 percent – the lowest among all the years under consideration.
Future Outlook
Steel volumes are expected to slightly improve due to enhancement in cement off-take in 2024. Moreover, as AGHA sells to large institutions and development projects, it can easily pass on the impact of cost hike and buttress its margins. The electric arc furnace technology employed by the company will continue to provide competitive edge by enabling it to produce steel with lower wastage and lower energy consumption. Furthermore, the company’s investment in solar energy and air separation unit will further aid its bottomline and margins. Import substitution adopted by AGHA will also improve its margins. MiDa rerolling mill new expansion is expected to result in enhanced efficiency. What makes AGHA vulnerable is its exorbitantly high debt-to-equity ratio which is inflating its finance cost.
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