Aisha Steel Mills Limited (PSX: ASL) was incorporated in Pakistan in 2005 as a public limited company and started its commercial operations in 2012. The company is engaged in the manufacturing and sale of cold rolled coils and hot dipped galvanized coils. ASL is a company of Arif Habib Group and is one of the largest private-sector investments in the local flat-rolled steel industry.Having its production unit strategically located at the Port Qasim, Karachi, the company not only caters to the local demand but also exports to many international destinations. The primary export destinations of ASL include North America, Asia, Africa, Europe and Middle East.ASL’s products serve as an important raw material to automobile, engineering and appliances industry which in turn produce value-added products for the local and export markets.
Pattern of Shareholding
As of June 30, 2024, ASL has a total of 930.016 million shares outstanding which are held by 10,998 shareholders. Associated companies, undertakings, and related parties have the majority stake of 47.58 percent in ASL followed by Directors, their spouses, and minor children holding 20.15 percent of ASL’s shares. The local general public accounts for 18.5 percent of the outstanding shares of ASL. Modarabas and Mutual funds hold 2.87 percent of shares while Banks, DFIs, and NBFIs have 1.56 percent shareholding. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-24)
ASL’s topline which has been riding an upward trajectory since 2019 registered a massive plunge in 2023. This was followed by a rebound in 2024. The company’s bottomline and margins followed a declining trend until 2020 followed by a staggering turnaround in 2021. The bottom line and margins got back to their downward trajectory in 2022 and 2023. ASL registered net losses in 2020, 2023 and 2024. In 2024, net loss was greatly reduced while gross and operating margins slightly ticked up. The detailed performance review of the period under consideration is given below.
In 2019, ASL’s topline registered a marginal 7 percent year-on-year rise. While there was a plunge in both production and sales volume during the year, stable prices of steel products helped ASL achieve higher net sales. In 2019, the company undertook massive expansion taking the total production capacity from 220,000 metric tons to 700,000 metric tons per annum but, on account of muted demand, ASL couldn’t realize optimum capacity utilization and produced 7 percent less than it did in the previous year (see the graph of production and sales volume). Higher steel prices and the sharp depreciation of the Pak Rupee resulted in a 19 percent year-on-year hike in the cost of sales in 2019. As a consequence, ASL recorded 49.36 percent thinner gross profit in 2019 with GP margin drastically falling down from 17.53 percent in 2018 to 8.296 percent in 2019. Distribution and administrative expenses mounted by 31 percent and 29.70 percent respectively in 2019 mainly on account of higher payroll expenses as well as elevated legal & professional charges incurred during the year. ASL didn’t book any profit-related provision in 2019, hence no other expense was incurred during the year. Other income mounted by 38.71 percent in 2019 on account of higher scrap sales. ASL registered 51.48 percent lower operating profit in 2019 with OP margin falling down from 15.84 percent in 2018 to 7.182 percent in 2019. Finance costs hiked by 72.88 percent year-on-year in 2019 due to a higher discount rate as well as increased borrowings. Another major component of finance cost was exchange loss which escalated in 2019 due to weaker local currency. ASL’s bottom line slid by 80.24 percent year-on-year in 2019 to clock in at Rs.253.70 million with EPS of Rs.0.26 versus EPS of Rs.1.57 in 2018. NP margin also slipped from 6.79 percent in 2018 to 1.25 percent in 2019.
In 2020, ASL’s topline posted a massive 47.19 percent year-on-year rise. This was backed by an upward revision in prices as well as a 26 percent year-on-year rise in the company’s sales volume which stood at 258,453 tons in 2020. Cost of sales hiked by 47.75 percent year-on-year in 2020 due to Pak Rupee depreciation despite the fact that steel prices subsided in the international market. Gross profit grew by 41 percent year-on-year in 2020, however, GP margin marched down to 7.95 percent. Distribution and administrative expenses hiked by 67 percent and 28.17 percent respectively in 2020 mainly on account of higher payroll expenses followed by higher legal & professional charges, utilities as well as repair & maintenance charges incurred during the year. Other income dwindled by 22.11 percent in 2020 on account of lower scrap sales. Operating profit enlarged by 40.61 percent year-on-year in 2020 but OP margin ticked down to 6.86 percent. Finance costs surged by 81.53 percent year-on-year in 2020 due to higher exchange loss, increased borrowings, and higher discount rates for most part of the year. ASL posted a net loss of Rs.616.57 million in 2020 with a loss per share of Rs.0.89.
FY21 appears to be the most fortunate year for ASL as not only did its sales volume grow by around 47 percent year-on-year to clock in at 379,622 tons, but its topline multiplied by 85.10 percent year-on-year. This was on account of reforms implemented by the government of Pakistan to deal with economic imbalance. These included a Rs.1.24 trillion package in the construction industry. 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. This resulted in an increase in the demand for commodities with steel being no exception. The global prices of steel peaked in 2021, however, the Pak Rupee somewhat stabilized. ASL was also able to pass on the impact of cost hikes to its consumers. As a consequence, gross profit mounted by 372.72 percent in 2021 with GP margin jumping up to 20.29 percent. In 2021, ASL not only performed brilliantly in the local market but its export sales also posted a massive rebound, especially in North America and Asia. As a result of export sales, selling and distribution costs also picked up by 470.70 percent, 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 saved the day and attained an OP margin of 18.3 percent in 2021– the highest since 2017. In absolute terms, operating profit strengthened by 394.98 percent in 2021. Finance cost also slumped by 55 percent in 2021 due to monetary easing, All these factors led to a stronger bottom line of Rs.6368 million in 2021 with EPS of Rs.8.21 and NP margin of 11.55 percent.
After bidding farewell to a blissful 2021, came a year full of challenges and shocks. Steel prices touched a record high on the back of the commodity super cycle in the international market. This coupled with weaker local currency proved to be a double whammy for ASL. Local economic activity remained suppressed due to political upheaval, high inflation, and enormous fiscal imbalances. This resulted in a 19 percent year-on-year fall in ASL’s sales volume to clock in at 306,213 tons. ASL’s topline grew by 17.62 percent year-on-year in 2022 primarily on account of upward revision in the prices of its products. Although international steel prices were corrected in 2022, the sharp depreciation in the value of the Pak Rupee gave no respite to the cost of sales and the GP margin plummeted to 8.50 percent, from its historic high of 20.95 percent in 2021. Gross profit also turned out to be 50.71 percent thinner than last year’s level. Export sales showed an improvement, particularly in the North American market; consequently, export clearance charges grew. This pushed selling and distribution charges up by 76.31 percent year-on-year in FY22. Administrative expenses also surged by 10.85 percent year-on-year in 2022. Other income massively dropped as the exchange gain realized in 2021 on the back of stable currency vanished in 2022. Operating profit slipped by 64.66 percent year-on-year in 2022 with OP margin drastically falling to 5.513 percent. Finance cost grew by 50.83 percent in 2022 owing to multiple hikes in the discount rate as well as increased working capital-related borrowings. As a result, the bottom line shrank by 82 percent year-on-year to clock in at Rs.1146.11 million in 2022 with EPS of Rs.1.27 and NP margin of 1.77 percent.
In 2023, ASL’s topline couldn’t keep pace with the economic and political headwinds circling the economy and dwindled by 52 percent year-on-year. Sales volume registered a 60 percent year-on-year contraction to clock in at 122,334 tons in 2023. This was on account of slower demand due to sluggish business activity which was the return of import restrictions, demand suppression as well as devastating floods which destroyed the infrastructure and agricultural sector to a huge extent. Cost of sales slid by 50.96 percent year-on-year in 2023. Although steel prices tapered off in 2023 due to the slowdown of major economies, ASL was not able to retain its GP margin owing to the sharp depreciation of the Pak Rupee. Gross profit nosedived by 63.48 percent year-on-year in 2023 with GP margin touching its 6-year lowest level of 6.47 percent. Distribution expense eroded by 66.36 percent year-on-year in 2023 due to decreased export sales. Administrative expenses inched up by 4.5 percent year-on-year in 2023 due to high inflation. Massive exchange loss resulted in a 131.83 percent spike in other expenses in 2023. ASL registered an operating loss of Rs.1203.79 million in 2023. Finance costs didn’t give any breather and surged by 58.23 percent year-on-year in 2023. This coupled with an increase in local taxes further worsened ASL’s net loss which stood at Rs.3215.65 million in 2023 with a loss per share of Rs.3.56.
In 2024, ASL registered a 37.45 percent year-on-year improvement in its net sales. This was the result of a 34.66 percent increase in the company’s sales volume coupled with a 2 percent upward price revision. The improvement in demand was driven by the automotive and infrastructure industries primarily on account of the low base of last year. The decline in international steel prices due to the slowdown in China coupled with the resilience exhibited by Pak Rupee resulted in a 90.24 percent increase in gross profit in 2024. GP margin also ticked up to 8.96 percent in 2024. Distribution expense mounted by 301.24 percent in 2024 due to higher export sales. Administrative expenses ticked up by 8 percent in 2024 due to higher payroll expenses on account of inflationary pressure. The company squeezed its workforce from 674 employees in 2023 to 625 employees in 2024. Other expenses slid by 99.79 percent in 2024 as no exchange loss was recorded during the year. Conversely, other income grew by 83.21 percent in 2024 due to exchange gain. ASL recorded a hefty operating profit of Rs.3064.22 million in 2024 with an OP margin of 7.17 percent. This was against the operating loss recorded in the previous year. Finance costs ticked up by 6.14 percent in 2024 due to a higher discount rate. ASL recorded a net loss of Rs.132.47 million in 2024, down 95.88 percent year-on-year. This translated into a loss per share of Rs.0.26 in 2024.
Recent Performance [1QFY25]
ASL’s topline registered a 56.79 percent year-on-year decline in 1QFY25 due to sluggish demand from China, the US, and Europe. The company sold 20,504 tons during 1QFY24, down 47 percent year-on-year. The decline in international CRC prices and cutthroat competition from importers forced the local companies including ASL to reduce their prices to foster sales. This resulted in 93.11 percent shrinkage in gross profit in 1QFY25 with GP margin falling down from 9.75 percent in 1QFY24 to 1.55 percent in 1QFY25. Lower sales volume resulted in a 56 percent contraction in distribution expense in 1QFY25. Administrative expense multiplied by 27.68 percent in 1QFY25 owing to inflationary pressure which drove up the payroll expense. The other expense of Rs.7.62 million recorded during the period denotes an exchange loss. Other income shrank by 98.74 percent in 1QFY25 as the company didn’t recognize any exchange gain during the period. ASL posted an operating loss of Rs.92.62 million in 1QFY25 as against an operating profit of Rs.1021.25 million posted in 1QFY24. Finance costs escalated by 16.28 percent during the period under consideration. The company posted a net loss of Rs.843.12 million in 1QFY25 as against a net profit of Rs.35.24 million posted during the same period last year. Loss per share stood at Rs.0.93 in 1QFY25 versus EPS of Rs.0.01 posted in 1QFY24.
Future Outlook
While the infrastructure and construction sectors are yet to exhibit recovery, modest growth seen in the automobile and white goods sectors may prove to be a good omen for steel manufacturers. Policy changes by FBR in the Finance Bill, 2024 are discouraging greater exports from the FATA/PATA region. This will result in gradual demand recovery for the formal sector.
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