Despite recession, Amreli Steel all set to increase its Production

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Despite recession, Amreli Steel all set to increase its Production

  • Amreli steel witnessed 84% increase in revenue in 2019, while it sets growth target for 2020
  • Declining scrap prices to benefit the company in coming months

Amreli Steels Limited, the premier steel company of Pakistan, held its Analyst briefing to discuss with market participants the financial and operational performance for the year ended June-2019 and future outlook of the company. 

In FY2019, Amreli has reported profitability of Rs33mn (EPS of Rs0.11) as compared to the profitability of Rs1,585mn in the same period last year.

The company’s loss is due to limited pricing power to pass on the higher production cost, increased finance cost, and an increase in admin and distribution costs.

Amreli showed solid growth in its revenue on the back of expanded facilities. Its revenue in FY2019 increased by 84% YoY. The  Increase in revenue is mostly attributable to higher volumetric growth of 62% YoY as the company received a positive response from Punjab and KPK market while experiencing higher retention prices (up 14% YoY in FY19).

 ASTL gross margins decreased in 2019 due to higher scrap prices, rupee depreciation and higher fixed cost from the Dhabeji plant.

ASTL’s capacity utilization level at its Dhabeji melt shop remained at 74% in FY19, while utilization of Dhabeji/Shershah rolling mill remained at 40/68% in FY19.

 
ASTL increased its Marketing campaign in Punjab area which resulted in higher selling costs. The company’s total debt stood at Rs. 11.8 billion (up 15% YoY).

Amreli’s Future Outlook

The management of ASTL is eyeing to achieve ~20% sales growth to achieve the target of 350k tons in FY20. The company is going to capitalize on dams and canal projects along with seizing market left by closer of smaller, ungraded players in particular of those relying on Gadani ship-breaking yard.

In coming quarters, ASTL will have the lag impact of declining scrap prices on its profitability due to a three-month inventory holding period and the company expects prices to stable around US$300/ton. Furthermore, the company plans to partially pass on the impact of lower scrap prices to end consumers through price reduction.

Furthermore, increased share in the North market and an increase in construction activity due to materialization of upcoming FBR proposal to incentivize the builders for investment in lower-cost housing schemes is expected to keep the sales for the company elevated.

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