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PIOC | AGHA - FY23 Analyst Briefing Takeaways,(AKD Off the Analyst's Desk Nov 24, 2023)

Agha Steel organized its corporate briefing today where the following points were discussed:

 

• Raw material supply chain was hindered by LC restrictions, causing production to stay repressed and capacity to stay underutilized.
• The depreciating Pak rupee in the outgoing year adversely affected Agha where their raw material costs remained volatile. The company was able to pass on the partial effects the customers while  some costs was absorbed inwards.
• Despite lower sales revenues of PkR24bn in FY23 vs. PkR25 SPLY, the company was able to retain a profit was PkR0.9bn.
• Production from the electric arc furnace results in  higher margins than long steel industry as Agha’s major raw material is DRI (Direct Reduced Iron), which is $80-$90 cheaper than shredded scrap. Company sources DRI from various countries like Oman, Saudia Arabia, and UAE.
• Once the MiDa expansion actualizes, company is expecting to yield gross margins of 30% and eliminate the use of fossil fuels, making it a green steel manufacturing plant.
• The MiDa project is due to achieve COD in Feb’24 and is expected to increase their conversion rate of producing rebars (from billets) to 99.4% vs. 94%-95% before.  This is coupled with higher energy savings, lower forex costs, and improved efficiency.
• Company mentioned that they are planning to revalue their assets going forward, keeping in line with inflation and exchange rate parity.
• The current rebar prices range from PkR270K/ton to 275K/ton and the company expects prices to remain stable moving forward.
• Although Agha imports scrap, domestic scrap prices are between PkR160K/ton and PkR170K/ton and are expected to go up in the coming future.
• On average, the company maintains a scrap inventory of 25K-28K MTs per month given a safety buffer of 30 days. Lead time is of a month and transportation takes another one month, contributing to an overall inventory on hand days of 2.5-3 months. Billets inventory accounts for 15-20 days.
• The overall MiDa expansion has been done at an average currency parity of PkR145/US$.
• The Vision Ignite Blast Furnace project is in its pilot stage where 45K-50K ton of hot metal will be substituted with scrap. This 70% substitution will take energy consumption down to zero.
• With the blast furnace and MiDa, 100% local indigenous iron ore will be used which will help the company hedge against future LC restrictions and enable the production of export competitive steel rebars. Agha’s first iron ore export order is due to be delivered in the coming week.
• Blast furnace that is yet to come, requires a CAPEX of $90mn-100mn and carries a capacity of 500KMT. A Chinese rating agency in cooperation with VIS is expected to grant a green manufacturing certificate, enabling them to raise Sukuk of PkR3.5bn, which will then be used to retire short term debt.
• Addressing the net zero carbon concerns, Agha is planning to expand into renewables as well.
• Agha has a standing MOU with Engro which will realize once CTBM kicks in.
• Moreover, the company is in the preliminary stages of exploring additional solar power generation  of 3.5MW.
• The company will be providing high alloy steel to the ML-1 project.
• Average grid cost stands at PkR32-35/kwh.

 

 

 

PIOC -  FY23 Analyst Briefing Takeaways

Pioneer Cement Ltd. (PIOC) held its corporate briefing earlier today to apprise investors on their FY23 financial results and future outlook of the company. Following are the key highlights of the call:

• To recall, company posted earnings of PkR11.5/sh in FY23 vs. PkR4.6/sh in the previous year, where the increase in gross margins amid receding coal prices was the primary reason for the bottom-line growth.
• Company's sales volumes have annually dropped by 20%/5% in FY23/1QFY24. The said decline was higher than that of the industry, changing by -15.7%/+23.5% in FY23/1QFY24, respectively, primarily attributable to the company’s focus on sales to areas with high retention prices and a decline in market share due to industry expansion.
• Further, management apprised that exports to Afghanistan are not viable to them due to high logistical cost.
• Retention prices for FY23 remain at 13.4k/ton vs PkR9.4k/ton in the previous year. For 1QFY24, retention prices averaged at PkR14.5k/ton, that price is now increased to PkR15.3k/ton after the recent price hike. The current MRP of the company is PkR1,250/bag.
• Furthermore, management has apprised that in FY23 the company increased reliance on PP (Polypropylene) bags from paper bags, thereby, reducing the packing costs to PkR771/ton from PkR849/ton in FY22.
• Coal mix for FY23 was 41% Afghan, 53% local, and remaining on imported coal. That mix has tilted more towards local coal, with 1QFY24 mix being 70% local and 30% Afghani coal.
• Power mix for FY23 was 46% CFB (Coal-fired boilers), 34% WHR, and the remaining on the grid. For 1QFY24, that mix was 51% CFB, 25% WHR, and 24% grid. The weighted average price of power for FY23 was ~PkR20/kWh. Further, management is targeting to bring this power cost to bring down to PkR18/kWh.
• As per management’s presentation, the company has successfully decreased its total debt from PkR22.2bn in FY22 to PkR14.8bn presently. Management expects long-term debt to decrease to PkR8.0bn (current PkR12.1bn) till Dec’23.
• Moving ahead, management expects this year industry’s growth to be not more than 5-6%.
• On the expansion, management stated that if industry growth remains above 5-6% going forward, there would be room for expansion. However, as of now, management is focused on reducing its debt, so if expansion plans go through, that would be mostly financed by internal cash generation.
• Furthermore, if management plans expansion, it would most likely be of 2.25mn TPA capacity, similar to their previous line and would be proposed by 2026 depending upon economic and market conditions.