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, 2024, ASTL has a total of 297.011 million shares outstanding which are held by 9011 shareholders. Directors, their spouses, and their minor children collectively hold 56.50 percent shares of the company to qualify as the major shareholders of ASTL, followed by associated companies, undertakings, and related parties holding 18.77 percent shares. The local general public has a stake of 9.29 percent in ASTL. Around 1.36 percent of the company’s shares are held by insurance companies and 1.34 percent by the foreign general public. Banks, DFIs, and NBFIs account for 1.19 percent shares of ASTL. The remaining shares are held by other categories of shareholders.
Performance Trail (2019-24)
ASTL’s topline slid thrice over the period under consideration, i.e., in 2020, 2023, and 2024. Its bottom line dropped until 2020, when it recorded a net loss. ASTL’s bottom line recovered from net loss in 2021. However, its bottom line started shrinking in 2022 and ended up in a net loss in 2023 and 2024. The margins tell a similar tale as the bottom line with the exception of 2023, where ASTL’s gross and operating margins markedly improved. For the first time over the period under consideration, the company posted an operating loss in 2024. 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 to clock in at Rs.28,595.98 million. The growth was led by both volume and price. The company sold 277,416 tons of prime bars in 2019, which was 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. The GP margin also shrank from 17.80 percent in 2018 to 8.48 percent in 2019. Distribution expense 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 inducted new employees to drive its workforce up from 815 employees in 2018 to 1388 employees in 2019. Other expenses plunged by 85.61 percent in 2019 as ASTL didn’t book any provisioning for WWF and WPPF. 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 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 an OP margin of 12 percent recorded in 2018. Finance cost took 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 EPS of Rs.5.34 posted in 2018. NP margin clocked in at 0.11 percent in 2019 versus an NP margin of 10.23 percent in the previous year.
In 2020, ASTL’s topline took a 7.22 percent year-on-year plunge to clock in at Rs. 26,532.14 million. This was because 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 expenses remained in check during the year due to low advertisement and promotion, while admin expenses posted a 9 percent increase on account of higher payroll expenses as a number of employees further increased to 1398 in 2020. The company also booked a 367.75 percent higher allowance for ECL in 2020. Other expenses also gave a cold shoulder and were 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 ASTL’s gearing ratio up to 67 percent in 2020. Higher finance cost 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 to clock in at Rs.39,218.45 million in 2021. This came on the back of a robust 33 percent increase in offtake, which stood at 363,949 tons in 2021. Radical increases in the cost of scrap and the cost of electricity, which constituted 79 percent of ASTL’s cost, wreaked havoc on its cost of sales. However, it was, to a great extent, passed on to the customers, which resulted in a striking 129.90 percent year-on-year increase in gross profit, with GP margin mounting to 11.6 percent 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. 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 cost 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 to clock in at Rs.58,184.28 million. This was 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 expense. Higher profit-related provisioning resulted in 50.62 percent taller other expenses in 2022. Operating profit grew by 45.58 percent year-on-year in 2022, with a slight downtick in the 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 in 2022 with EPS of Rs.4.46 and an NP margin of 2.3 percent.
In 2023, ASTL registered a topline drop of 21.81 percent year-on-year to clock in at Rs.45,492.72 million. This was on the back of low volume as floods hit the country during the first quarter of FY23, which hampered the construction activity. 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 the cost hike 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 done 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. The operating profit plunged by 8.62 percent year-on-year in 2023, while the 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 62 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.2.35.
ASTL’s topline plummeted by 14.76 percent in 2024 to clock in at Rs. 38,775.74 million. This was due to diminished investment in infrastructure projects owing to an unparalleled hike in discount rate and energy prices, high inflation, political and economic unrest, and shrunken pockets of customers. The entry of new competitors in the northern region also created intense rivalry in the market. ASTL sold 174,071 metric tons of prime rebars in 2024, down 20.25 percent year-on-year. Due to lower capacity utilization, fixed cost remained unabsorbed which, coupled with elevated energy tariffs and Pak Rupee depreciation, resulted in a 59.72 percent drop in gross profit in 2024, with GP margin falling to its lowest level of 6.19 percent. The company was unable to pass on the impact of high cost to its consumers due to increased competition. Higher freight charges due to soaring fuel costs and the implementation of axle load resulted in a 10.49 percent surge in distribution expenses in 2024. Administrative expenses also mounted by 12.15 percent in 2024 due to higher payroll expenses on account of inflationary pressure. The company squeezed its workforce from 749 employees in 2023 to 662 employees in 2024. Allowance for doubtful debt multiplied by 217 percent in 2024 due to increasing default rates, keeping in view the deteriorating macroeconomic conditions. The 136.89 percent growth in other expenses recorded in 2024 was the result of a loss incurred on the sale of property, plant & equipment, exchange loss, as well as detention charges incurred during the year. Other income also dipped by 62 percent in 2024 due to lower profit recognized on TDRs. ASTL recorded an operating loss of Rs.130.79 million in 2024. Finance cost grew by 18.34 percent in 2024 due to a higher discount rate and increased short-term borrowings. This translated into a gearing ratio of 65 percent in 2024. ASTL’s net loss magnified by 800.11 percent to clock in at Rs.6106.72 million in 2024 with a loss per share of Rs.20.56.
Recent Performance (1HFY25)
During the first half of the ongoing fiscal year, ASTL’s topline dipped by 60.45 percent to clock in at Rs.8,800.824 million. This was on account of weak demand and increased competition, including the smuggling of steel products from the neighboring countries, leading to reduced market share. High energy cost, as well as inefficient absorption of fixed cost due to low capacity utilization, resulted in 90.10 percent shrinkage in gross profit in 1HFY25, with GP margin falling down from 11.16 percent in 1HFY24 to 2.79 percent in 1HFY25. As of June 30, 2024, ASTL’s current ratio fell below 1:1, which was required to be maintained as per its loan agreements. Due to the breach of this condition, the company’s long-term loans along with subsidized loan were classified as current in accordance with the requirements of IAS-I “Presentation of financial statements”. During the period under consideration, the company was in the process of restructuring its loan and had to shut down its plant located at Shershah due to its unstable financial position. Distribution expenses slid by 43.74 percent due to lower sales volume recorded during the period. Administrative expenses also dropped by 12.82 percent in 1HFY25, probably due to continuous shrinkage in the workforce. The company booked a reversal of provisions worth Rs.57.53 million against ECL in 1HFY25 versus the provisioning of Rs.29.17 million done against ECL in 1HFY24. Other expenses tumbled by 74.20 percent in 1HFY25, apparently due to no exchange loss incurred during the period. Other income mounted by 3382.39 percent in 1HFY25, probably due to higher return on long-term deposits, which grew during the period. Another reason for the robust other income could be the gain recognized on the sale of non-core assets, which was done to improve the liquidity position of the company. ASTL incurred an operating loss of Rs.351.03 million in 1HFY25 versus an operating profit of Rs.1338.69 million recorded in 1HFY24. Finance cost slid by 1 percent during the period due to a lower discount rate. The company’s net loss mounted by 195.28 percent to clock in at Rs.1873.06 million in 1HFY25. This translated into a loss per share of Rs. 6.31 in 1HFY25 versus a loss per share of Rs. 2.14 recorded in 1HFY24.
Future Outlook
While the macroeconomic conditions boast notable improvement, the revival in the demand of steel sector will take time given deteriorated investor confidence, weakened purchasing power of consumers, increased competition and smuggling of illegal steel products. The decline in steel demand due to the recession in the major economies has resulted in lower prices of steel in the international market. However, this puts the local manufacturers at a competitive disadvantage due to the high conversion cost in the country.
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