Report
Sharoon Ahmad
EUR 4.62 For Business Accounts Only

Pakistan Steel Sector - Flat Steels: Earnings Expected to Take a Hit on Expected Offtake Slump

  • Flat Steel Earnings are expected to be reminiscent of 1QFY19’s earnings decline (Gross Profit/EBITDA/NI: -16%/-14%/-27%YoY) at least in  near term where we expect FY19F earnings to fall by 12%YoY owing to pricing pressures, offtake slump, rising interest rates and higher depreciation (attributable to recent/upcoming expansions).
  • Local manufacturers have desisted curtailing prices in spite of international slide in flat steel prices as to offset impact of PKR depreciation. This has led to increased pricing pressures from imports particularly in CRC, causing domestic produce to fall rather drastically compared with demand slowdown.
  • As such, we expect CRC-HRC and GC-HRC realized spreads to sustain at USD150/USD180 per ton (maintaining our earlier assumption) at the expense of offtake growth slowing down to -10%/0%/6% for FY19F/FY20F/Long Term (vs. earlier 7% forecast over the investment horizon).
Underlyings
Aisha Steel Mills

Aisha Steel Mills Limited. Aisha Steel Mills Limited is a Pakistan-based company, which is engaged in the primary business of manufacturing and selling cold rolled steel in coils and sheets. The Company produces cold rolled coils from imported hot rolled coils. The Company offers cold rolled coils products to the industrial, engineering and manufacturing industry as a raw material for transformation into a range of value added products for the domestic and export markets. The Company has a cold rolling complex in the downstream Industrial Estate, Pakistan Steel, Bin Qasim, Karachi. The Company's cold rolling complex has a capacity to produce 220,000 metric tons of cold rolled coils per year.

Amreli Steels

Amreli Steels Limited is a Pakistan-based steel manufacturing company. The Company is engaged in the manufacture and sale of steel bars and billets. The Company offers a range of steel bars for all construction needs.

International Steels

International Steels Limited is a producer of flat steel products. The Company manufactures cold rolled steel coils, galvanized coils and color coated steel. Its cold rolled steel is available in thicknesses ranging from 0.25 millimeter (mm) to 3.0 mm; galvanized steel is available in thicknesses of 0.25 mm to 2.0 mm, and color coated steel is available in thickness range of 0.20 to 1.50 mm. Its rolling capacity is 500,000 metric tons (MT). It produces approximately 400,000 MT of galvanized products. It produces color coated sheets on various substrates, including cold rolled, galvanized, galvalume, aluminum and stainless steel sheets. Its cold rolled steel offers applications, such as ceiling lights, tube lights, ceiling fans, oil drums, lube drums and motor cycle frame; galvanized steel has applications, such as packaging, furniture, washing machines, gas ovens and microwave ovens, and color coated steel offers applications, such as ice boxes, tubs, buckets and storage bins.

Provider
Elixir Securities
Elixir Securities

Elixir Securities Pakistan is a Corporate Member of the Pakistan Stock Exchange & Pakistan Mercantile Exchange and is one of the leading securities brokerage & investment banking firms in Pakistan, established since 1994. Our principal business activities include all aspects of Pakistan’s Capital Markets covering Securities Brokerage (Equities, Fixed Income and Commodities), Corporate Finance & Capital Markets Advisory (M&A, ECM, DCM) and Investment Research (Economics & Securities). We are one of the most active & aggressive Broker-Dealers in Pakistan executing trades for most of the Top 20 Global Brokers with unmatched corporate access credentials and have successfully advised and closed on some landmark ECM transactions in the history of Pakistan including the largest deal in frontier Asia (USD 1.02 billion). Our Clients include foreign and domestic financial institutions (Banks, Asset Managers, Insurance Companies, Pension Funds) corporates, HNWI’s and retail investors. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media.

Elixir Securities Pakistan is the proud recipient of many awards & recognitions including AsiaMoney’s Brokers Poll 2017, FinanceAsia’s Pakistan Best Investment Bank and Best Broker 2017, The Asset’s Best Brokerage House in Pakistan 2016, Asiamoney’s “Best Domestic Equity House 2015 in Pakistan”, The Asset Triple A Country Awards 2015 - Pakistan “Deal of the Year” and “Deal of the Year-Highly Commended”, CFA Society of Pakistan Awards for Year 2015 “Best Research Analyst (1st Rank), CFA Society of Pakistan Awards for Year 2014 “Best Research Analyst (1st Rank)”, “Best Trader” 2nd Runner-up (3rd Rank), The Asset Triple A Country Awards 2014’s “Best Deal in Pakistan” and Capital Finance International’s nomination for “Best Equity Research in Pakistan 2010”.

Analysts
Sharoon Ahmad

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