ISL: Timely expansion amid surging demand; initiate at Buy
- We initiate coverage on ISL, the leading manufacturer of flat steel products in Pakistan, with a Buy rating and a TP of PkR153/sh (19% total return). This is underpinned by accelerating demand from the automotive, appliances and construction sectors with ISL poised to capitalize via its upcoming 450ktpa capacity expansion.
- The immediate-term checkpoint for ISL is the Lahore High Court’s decision regarding antidumping duty on CRC (9-19%) where retention of the same can enable the company to pass on the price differential. We have stayed conservative by assuming a modest 3% CRC pass-through in FY17/18F.
- ISL is poised to be one of the fastest growing companies within our coverage where 5yr profit CAGR is projected at 47%. This justifies premium valuations where FY17F P/E of 16.3x compresses to 7.6x in FY19F when the expansion sees a full-year effect.
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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