ISL: Recovery of pricing power to be gradual; Neutral
- We lower our rating on ISL from Buy to Neutral with a new TP of PkR165/sh (up 8%, Jun’18) as the recent 35% rally since May 3rd incorporates the benefits of resolution of LHC case against antidumping (AD) duty, in our view. We have however revised down our FY17/18F estimates by 14%/10% on higher-than-expected tax rate and lower spreads.
- A major overhang from Lahore High Court’s case against the AD duty has allayed as the petition has been dismissed by the court. This will provide local producers of CRC greater ability to pass-on cost increases, all else the same, in our view.
- However, the international steel prices have been plummeting sharply since Mar’17 owing to surging levels of iron ore inventories in China; declining iron ore prices (down 36% since) will likely drag international CRC prices. Meanwhile, local producers have not yet responded with any price cuts. This may curtail their pricing power.
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.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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