Crescent Steel & Allied Products Limited (PSX:CSAP) started its journey in 1987 with just a pipe-manufacturing facility. Today, it has diversified into four sectors - engineering, textiles, capital markets, and power. The firm boasts a market capitalisation of Rs 9.9 billion.
Crescent Steel's journey has been laden with diversifications and acquisitions. In 2000, the company acquired what is now its largest revenue winner - Crescent Cotton Products. This segment comprises one spinning unit with nearly 20,000 spindles. It has a daily production capacity of 500 bags of high quality cotton carded yarn in a variety of counts.
The steel segment comprises a pipe-manufacturing plant, pipe-coating facility, and an engineering unit that provides machinery fabrications services for the sugar, cement, and food industry. The company has been an industry leader in Pakistan for "large diameter submerged arc-welded helical steel pipes" and its coatings for two decades.
The Investment and Infrastructure Development Division (IID) manages a portfolio of equity investments and real estate, and was carved out as a separate business unit in 2007. Revenues from this segment are recorded under "Income from investments." In 2010, Crescent Steel entered the energy business by acquiring a 100 percent stake in Shakarganj Energy (Private) Limited. In 2012, it acquired a 100 percent stake in CS Capital (Private) Limited. The next year, it incorporated a wholly owned subsidiary, Crescent Hadeed (Private) Limited, to manufacture steel billets.
Prior Performance Since the IID division of the company does not have any sales per se, the top line reflects the steel and cotton segments. Both have been on a nosedive over the past three fiscal years since the peak in FY13. Fiscal '13 was a period of enhanced sales due to a boom in infrastructure and the demand for line pipe coatings. This was also the year the company outsourced yarn production and saw an increase in both volume and prices, as per the Director's Report. Since then, it has mostly been downhill.
For a company that claims steel as its core business, Crescent sure is reliant on cotton a lot - cotton has always accounted for the lion's share of the company's top line (approximately 71 percent as of FY15). However, margins are another story.
The graph shows that the steel segment's gross margins have always been way ahead of the textile division. However, the last few years have been downhill for both textile and steel. The steel division's performance has adversely been affected by low order intake due to tariff anomalies in the welded Steel line pipe category, and the "misinterpretation of a government regulation on price preference," which enabled the entry for foreign suppliers into the local market, as per the Director's Report. As for textile, load shedding resulted in units running under capacity, causing losses.
Moreover, the company does not have any exports, save for a very meager amount of cotton yarn. This amounts to less than 2 percent of the top line as of FY15. For all its woes, however, Crescent Steel has still somehow managed a positive bottom line each year. This is where its third segment, IID (Investment and Infrastructure Development Division), comes in. The graph shows the net profit before tax of each segment. The steel and cotton divisions of the company both went into losses as of FY15, while the IID segment has single-handedly carried the weight. It has accounted for the lion's share of net profit since FY13.
Recent Performance For the first quarter of fiscal '16, Crescent Steel seems to have made a phenomenal comeback: sales almost doubled year-on-year while gross profits went through the roof twenty-fold! Surprisingly enough, this has been due to the steel division alone. As per the Director's Report, the steel division posted before-tax profit of Rs 262.9 million and mitigated the losses of cotton and IID divisions. The cotton division of the company was closed over the period due to planned BMR activities and challenging market conditions. As for the IID, a decline in equity markets in September 2015 resulted in unrealised losses and thus IID posted a loss of Rs 35.9 million.
The entire sales revenue of the quarter was thus due entirely to the steel division, which is impressive to say the least. During the quarter, there was strong order intake from gas transmission companies for both bare pipe and coating.
Outlook For the cotton segment, major reprieve was given in the form of 10 percent RD on Indian yarn imports imposed a few months ago. Since Crescent's reliance on its domestic market is enormous, this bodes well for the segment.
For the steel segment, its smooth sailing ahead as projects in gas and power emerge. At the onset of FY16, Business Recorder reported that SNGPL awarded over Rs 2.5 billion contracts to Crescent Steel. The company said that the monetary value of the SNGPL's orders is higher than the last three years combined, as well as the orders currently in hand!
==============================================================
Crescent Steel & Allied Products
==============================================================
Rs (Million) 1QFY16 1QFY15 YoY
==============================================================
Net Sales 943 498 89%
Cost of Sales 633 483 31%
Gross Profit 311 15 1973%
GP Margin 33% 3% up 3000 bps
(Loss)/Income from Investments -32 105 -130%
Distribution & Selling 3 5 -40%
Administrative Expenses 37 38 -3%
Other Expenses 19 - -
Other Income 6 9 -33%
Finance Cost 30 10 200%
Taxation 67 3 2133%
Profit After Tax 129 72 79%
NP Margin 14% 14% down 10 bps
EPS 2.07 1.16 78%
==============================================================
Source: company accounts
Comments
Comments are closed.