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ASTL FY23 & 1QFY24 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Nov 16, 2023)

ASTL conducted its Analyst Briefing today where the following points were discussed:

In FY23, ASTL recorded a sales of PkR45.4bn and a net loss of PkR678.4mn (LPS: PkR2.28/sh). Prime Rebars sold during the year stood at 218KMT.

Gross margins increased from 11.16% in FY22 to 13.11% in FY23, owing to positive price variance. Although, volumes dropped by 38% owing to post flood effects.

Cost of sales per ton increased attributable to increase in scrap cost given the depreciating exchange rate. Utilization remained low which in turn added to increased additives cost per ton.

Sales revenue declined by 23%YoY given decline in sold volumes resulting from flash floods, political unrest, record high interests and inflation, and LC restrictions.

Electricity power tariff changes, increasing from PkR21/kwh to PkR29/kwh, have a significant contribution (15%) in rising production costs.

Capacity utilization dropped from 61% to 34% which led to lesser fixed costs being absorbed by volumes; hence, contributing 7% to overall increase in costs.

Company struggled with LC restriction issues and decreased capacity utilization in Q3FY23 where the lead times were impacted. Hence, inventories fell by 18.17%YoY to PkR7.01mn and short term borrowings also decreased by 28.04%.

Going forward, if reserves stay regressed, foreign currency exchange rate will remained negatively impacted. Hence, the current account deficit might increase where the government might step in again to impose LC restrictions which may in turn affect the ASTL imports.

Company has currently suspended any new capex except the routine capex and are trying to redirect their production to Dhabeji in order to maximize efficiency and benefit from solar power plants installed there.

Scrap prices are expected to stay between $415-$417/ton (Cost and Freight Included), where a volatility of $5-$6/ton is expected. 

Steel demand for FY24 is expected to stay flat given the uncertainty encircling GDP growth rate.

Raw material mix is such that 80% is directed towards shredded and 20% towards bundle.

Given high interest and inventory management costs, rebar’s inventory on hand is 15-16 days, 5-7 days for billets, and 90 days for scrap.

95% of their power requirements are being met by K-electric and 5% through 72MW installed solar power plant. On average, energy requirement for melting billets is 640-650kwh/ton.

Signs of industry consolidation can be seen where smaller steel mills are struggling to operate given high working capital needs and depreciating exchange rate. Secondly, this lag in supply is also attributable to smaller mills where they are no longer able to misuse the advantage of incremental units, a subsidized scheme introduced by the government to incentivize production during COVID.

Company is not considering equity injection to reduce leverage at the moment. If more equity is raised later, it will be towards further investing in solar power.

KIBOR based loans are approximately 60% of total debt and reduced financing amounts to 40% of the debt.

International scrap prices are projected to stay stable given regressed global demand.

The aluminum project is shelved at the moment and the company is instead focusing on conducting tests within the non-ferrous segment.

The company is also contemplating working on two 9MW wind power plants towards the end of FY25.