EUR 12.20 For Business Accounts Only

Amreli Steels (ASTL): 3QFY18 EPS Rs1.59, +40% YoY (+44% QoQ) (Above expectations)

• ASTL reported 3QFY18 EPS of Rs1.6, up 40%YoY (44%QoQ), which was above expectations.
• ASTL reported sales revenue of Rs4.6bn up 29%YoY /31%QoQ. This was due to both price and volumetric growth in outgoing quarter. However 9MFY18 sales growth was at 7%YoY owing to shutdown of company’s rolling mills for a period of two weeks in 1QFY18 for maintenance purpose.
• Gross margins for the 3QFY18 clocked in at 21% up 1.7ppts YoY mainly on account of increased prices to fully pass on the impact of the recent PKR devaluation coupled with better rebar-scrap spread in outgoing quarter, we estimate.
• Effective tax rate of the company clocked in at 23% compared to 22% reported last year as company availed tax credit for its new billet plant which has started its commercial operations in 1QFY18, we believe.
• ASTL has managed to contain its operational expenses effectively, reducing SG&A as a percentage of sales from 2.4% in 3QFY17 to 2% in 3QFY18, while financial charges were up 103% YoY due to higher short-term borrowing to meet it’s growing working capital requirements.
• We flag 1) downward revision in duty structure, 2) volatility in commodity prices, 3) dumping from countries not covered by anti-dumping duties, & 4) delay in expansion commissioning 5) Prolonged load shedding from grid as key risks.