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ISL - FY23 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Oct 10, 2023)

AKD, Off the Analyst's Desk

ISL - FY23 Analyst Briefing Takeaways

 

ISL held its corporate briefing session yesterday where they talked about the following points:

 

• PAT for FY23 was PkR3.5bn which would have been PkR4bn if retrospective super tax of 10% was not taken into consideration. Capacity utilization came down to as low as 35% but given the several productivity initiatives undertaken by the company, they were able to control business costs while also generating a profit.
• New Electrolytic Cleaning line was commissioned, which is intended to streamline cold rolled capacity and boost efficiency in Tin Mill Plate production, possibly enabling the company to offer these grades for exports.
• ISL’s cost of doing business increased in FY23 largely due to higher interest rate alongside sharp currency depreciation during the period.
• The company exercised strict discipline around the working capital management and deleveraged themselves to the extent that the company ended the year with a cash surplus of PkR1.6bn
• Import restrictions remained less of a problem for ISL largely due to successful allowance of LCs due to their strong export footprint.
• From its operational activities, the company focused on its working capital management and generated a robust cash flow of PkR22.3bn while also deleveraging on its long term and short term borrowings by PkR16.8bn for FY23.
• The company’s debt profile largely consists of concessionary financing including TERF, LTFF and EFS based loans. The company’s debt stood at PkR4.7bn during FY23 end, sharply declining from PkR22.5bn last year.
• Domestic Sales in FY23 stood at PkR64bn, declining from PkR72bn in FY22. This can be explained by falling international prices from $1100 last year to $560 by year end and regressed volumes of 308,000MT in FY23 when compared to 424,000MT in FY22. Gross margins remained strong at 13.8% in FY23, depicting a tight control over expenses and strict discipline around working capital. 
• ISL sources 80% raw material from JFE (second largest steel producer in Japan) where they are benefited from premium quality, reliability of supply and delivery, and cost efficient raw material. Main import venues of raw material include Japan, China, Turkey and a small portion is dedicated from Vietnam.
• Backward integration into the manufacturing segment deems as a difficult and infeasible option now, considering the business’ magnitude and the requirement of $350mn worth of LC establishment needed to source material in the country.
• The sales tax exemption in FATA and PATA regions were largely reinstated to curb violence and extremism in the said territories. ISL has taken the matter with the GoP, where they have extended the period for another 12 months up until June 2024.
• The cold rolling process uses the most electricity where the consumption is 80-100KWh/ ton of steel. The wastage level of producing one ton from CRC to HRC is 4% and for galvanized steel is 5%.
• The company relies on gas and grid both for their power requirements. On the solar front, the management explained that their plant consumption is 21MW while the current space available for solar plant installation is 3MW, declaring it an insufficient solution. Moreover, the solar plant can only be functional 12 hours/day and natural gas is an unreliable source of supply to meet their energy requirements. Hence, the management is expecting their continued reliance on gas and grid for their energy needs. 
• The company is expecting no growth in CRC going forward but expects that their market share would stay stable.

 

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