The company was incorporated as a private limited company in 2013 and then converted into a publicly listed company in 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, 2024, AGHA has outstanding shares to the tune of 604.88 million shares which are held by 6357 shareholders. Directors, CEO, their spouses, and minor children hold a major stake of 52.31 percent in the company followed by the local general public holding 39.90 percent shares. Insurance companies own 3.28 percent of the company’s shares while Banks, DFIs, and NBFIs account for 1.74 percent shares. The remaining ownership is distributed among other categories of shareholders.

Historical Performance (2020-24)

Barring a year-on-year plunge in 2023 and 2024, AGHA’s top line has shown an upward trajectory in the remaining years under consideration. Conversely, its bottom line has been registering a decline since 2022, which will translate into a net loss in 2024. AGHA’s margins witnessed a sound recovery in 2020. In the subsequent year, gross and operating margins nosedived while net margin continued to pick up. This was followed by a slump in the margins in 2022. In 2023, gross and operating margins recovered while net margins shrank further. In 2024, the margins entered the negative zone. The detailed performance review of the period 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 registering a rigorous rebound of 67.24 percent in its gross profit with GP margin climbing up to 25.3 percent in 2020 from GP margin of 19.4 percent recorded in 2019. Operating expenses escalated by 45.68 percent year-on-year in 2020 due to a massive hike in payroll expenses 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 expenses in 2020. Other expenses multiplied by 230.10 percent in 2020 due to higher provisioning for WWF and WPPF as well as impairment loss on trade receivables. However, it was offset by 282.53 percent bigger other income earned by the company in 2020 on account of high markup on loans to associates, the effect of discounting of supplier credit, exchange gain as well as sales tax input. AGHA was able to register 77.56 percent higher operating profit in 2020 with OP margin flying up to 23 percent from OP margin of 16.61 percent recorded in 2019. Finance costs also surged by 50 percent in 2020 due to high discount rates for most part of the year. AGHA posted a net profit of Rs.1235.59 million in 2020, up 60.73 percent year-on-year. This translated into EPS of Rs.2.96 in 2020 versus EPS of Rs.2.13 posted in 2019. NP margin also boosted from 7.33 percent in 2019 to 9.2 percent in 2020.

In 2021, Pakistan’s economy showed signs of recovery after the period of slowdown owing to COVID-19. Net sales grew by an impressive 47.9 percent year-on-year on account of the 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 32.55 percent in 2021, however, GP margin sank to 22.67 percent as China, the top producer of steel withdrew 13.5 percent of tax rebate to its steel industry which resulted in a sharp rise in steel prices. This coupled with the spike in electricity tariff also played an eminent role in squeezing AGHA’s GP margin in 2021. Operating expenses mounted by 20.51 percent year-on-year in 2021 owing to high payroll expenses, fee & subscription charges, freight charges, and an augmented advertisement & promotion budget to attain greater market penetration. Finance costs played a vital role in giving a boost to the bottom line. Other income slipped by 18.30 percent year-on-year in 2021 as markup on loans to associate companies which was the major head of “other income” until FY20 faded away in FY21 owing to monetary easing. Other expenses mounted by 72.29 percent in 2021 on account of higher provisioning for WWF and WPPF as well as impairment loss on trade receivables. Operating profit improved by 28.14 percent in 2021 with OP margin falling down to 19.95 percent. Finance costs decreased by 17.24 percent year-on-year in 2021 owing to a stable exchange rate and low discount rate. AGHA was able to attain 64.78 percent bigger net profit in 2021 which clocked in at Rs.2036 million with EPS of Rs.3.62 and NP margin of 10.25 percent.

In 2022, 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 at an unparalleled level. This was because of the demand uncertainty coming on the back of the 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 the Pak Rupee as well as devastating floods in the southern region of the country resulted in subdued demand from the public and private sector in 2022. In 2022, AGHA’s net sales went up by 29.16 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 a role in driving the net sales up. However, looking at the plant operations reveals 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 materials for most part of the year coupled with Pak rupee depreciation proved to be a double whammy for AGHA, shrinking its gross margin to 21.41 percent in 2022, despite a 21.94 percent year-on-year uptick in gross profit. Operating expenses spiked by 18.23 percent year-on-year in 2022 on account of higher payroll expenses as AGHA’s workforce widened from 310 employees in 2021 to 390 in 2022. Higher traveling and conveyance charges, software development, charity, advertisement & promotion, freight, and brokerage charges also pushed up the operating expense in 2022. Other expenses grew by 245 percent in 2022 on account of exchange loss and impairment loss on trade receivables. Other income lent a helping hand to the bottom line as the company made a massive profit from its air separation unit installed from the IPO proceeds of 2021. Operating profit ticked up by 11.66 percent in 2022, however, OP margin slid to 17.25 percent. Finance costs surged by 51.59 percent year-on-year in 2022 on account of the high discount rate. The bottom line of AGHA shrank by 8.9 percent year-on-year to clock in at Rs. 1854.77 million with an NP margin of 7.23 percent. EPS also dived down to Rs.3.07 in 2022.

During 2023, AGHA’s topline contracted by 19.75 percent year-on-year on account of a depressed economic backdrop due to devastating floods in the major region of the country, extended political uncertainty, and high inflation which squeezed the purchasing power of consumers. High discount rates, political and economic headwinds, narrowing purchasing power of consumers sky-rocketed inflation and imposition of new taxes kept the potential investors shy of the real estate investments, resulting in subdued demand for steel and allied industries in 2023. PSDP disbursements were also slow on account of the gloomy political backdrop and widening fiscal slippages. Depressed demand for 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 AHA’s topline in 2023. Due to stumbled business activity in 2023, the cost of sales also dwindled by 21.81 percent, the result of which was an uptick in GP margin which clocked in at 23.42 percent in 2023. However, in absolute terms, gross profit narrowed down by 12.21 percent in 2023. Operating expenses eroded by 8.36 percent in 2023 on account of lower payroll expenses as the number of employees was reduced from 395 in 2022 to 350 in 2023. Moreover, lower legal & professional charges, software development expenses, advertisement & promotion as well as brokerage charges also contributed to lower operating expenses in 2023. Other income rose by 15.78 percent year-on-year in 2023 due to augmented profit from air separation units and higher markup on loans to associates. Other expenses dropped by 76 percent in 2023 due to lesser profit-related provisioning and lower impairment loss on trade receivables. AGHA recorded a 1.1 percent downtick in its operating profit in 2023, however, OP margin strengthened to clock in at 21.27 percent. Finance costs posted a year-on-year spike of 50.23 percent in 2023. Despite keeping a check on its cost and expenses, AGHA couldn’t guard its bottom line which registered a 51.21 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.

In 2024, AGHA’s topline registered a massive decline of 33.48 percent owing to lackluster construction activities in the country. The Red Sea crisis, Global disruption in the supply of scrap, and implementation of axle load also resulted in supply chain impediments, resulting in low capacity utilization. Besides exogenous factors, the company also encountered a fire incident at its manufacturing facility during the year which led to a temporary halt in production activities. The cost of sales slumped by only 9.15 percent in 2024 due to high energy tariffs, gas supply constraints, fluctuating international prices, and inflation. This resulted in a gross loss of Rs.628.31 million recorded in 2024. Lower sales volume resulted in a 12.43 percent decline in distribution expense in 2024 on account of low carriage & freight as well as brokerage charges. Administrative expenses ticked up by 5.86 percent owing to inflationary pressure. Number of employees stayed intact at 350. Other expenses mounted by a massive 1387.22 percent in 2024 on account of impairment loss on damaged fixed assets due to fire incident, impairment loss on trade receivables, and provision for write-down of assets to their net realizable value in accordance with IAS-2 owing to the fire incident. Other income grew by 86.58 percent in 2024 on account of insurance claims and higher markup on loans to associates. AGHA recorded an operating loss of Rs.3011.30 million in 2024. To add to a do, finance costs surged by 42.8 percent in 2024 due to higher discount rates and increased borrowings. However, an increase in authorized capital by 3 million ordinary shares and 1 million preference shares having a face value of Rs.10 as well as a surplus recorded on the revaluation of fixed assets also resulted in higher equity in 2024. This squeezed the company’s gearing ratio from 58 percent in 2023 to 48 percent in 2024. The company recorded a net loss of Rs.5088.57 million in 2024 with a loss per share of Rs.8.41.

Future Outlook

Higher taxes imposed on the masses, sustained periods of high inflation, high energy, and construction material prices as well as interest rates still hovering at higher levels have arrested construction activities in the country. Commercial construction activities also shrunk owing to wavering investor confidence. Token improvement in macroeconomic indicators and a stable political environment may restore construction activities at a slow pace.

The electric arc furnace technology employed by the company will continue to provide a 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 units will aid its bottom line and margins. Import substitution adopted by AGHA will also improve its margins. Recently, the Fauji Foundation has expressed its intention to acquire AGHA.