Karachi, September 28, 2023 (PPI-OT): INIL: Fiscal consolidation to impact FY24; Growth prospects ahead
INIL conducted its Corporate Briefing yesterday to discuss FY23 financial performance and outlook. To recall, the company announced 4QFY23 EPS of Rs13.5, compared to LPS of Rs2.4 in 4QFY22. This took FY23 consolidated EPS to Rs23.4, an increase of 27% YoY. Company also announced dividend of Rs7.5/share during the last quarter.
Despite lower revenue owing to dull volumes, margins at the group level increased 1.7ppt YoY to 15.2% in FY23 due to proactive management of working capital despite restriction on import of raw materials and cost control amid inflation.
Due to fiscal consolidation, we anticipate pressure to continue on volumetric sales in FY24. However, as the macroeconomic situation improves, a more favourable demand outlook could create opportunities for INIL to expand.
Improved margins on back of proactive cost management
International Industries Limited (INIL) is the leading manufacturer of a wide range of products, including Galvanized Iron pipes, Cold Rolled tubes, Stainless Steel tubes and pipes, High-Strength Steel (HSS) products, Black and Scaffolding pipes, as well as Polymer pipes. INIL has the most extensive product portfolio in the segments it serves.
INIL conducted its Corporate Briefing yesterday to discuss FY23 financial performance and outlook. To recall, the company announced 4QFY23 EPS of Rs13.5, compared to LPS of Rs2.4 in 4QFY22. This took FY23 consolidated EPS to Rs23.4, an increase of 27% YoY. The company also announced dividend of Rs7.5/share during the last quarter.
During the year, domestic sales dropped 18% YoY to Rs21.7bn owing to a 38% decrease in sales volumes. This decline was caused by a challenging business environment marked by a lack of infrastructure projects, construction sector slowdown, auto industry shutdowns and raw material import difficulties. Overall revenue of the group clocked in at Rs101bn, declining 17% YoY. Despite lower revenue, group level margins increased by 1.7ppt YoY to 15.2% in FY23 due to proactive management of working capital, despite restriction on import of raw materials and cost control amid inflation.
Management highlighted that misuse of FATA/PATA exemptions, specific to production in those regions, for the rest of the country by some steel players without paying any sales tax has been a cause of concern for the group.
Polymer and Stainless-steel segments up and running
INIL's strategic focus is centred on driving growth and sustainability. The group prioritizes innovation by continuously developing new products and exploring opportunities in new market segments and geographies. Company continues to plan on further expanding presence in the value-added market, offering enhanced products to meet evolving customer needs.
INIL commenced operations of its UPVC plant at Sheikhupura site last year, increasing the product range of INIL. The polymer segment produces pipe and fittings for 1) water drainage and sewerage, 2) distribution of water and gas and 3) use in telecommunication and ducting applications. Turnover for Polymer pipes segment was Rs3.5bn (+30% YoY) on back of strong institutional business.
INIL also aims to boost market share in the stainless-steel segment on back of its new SS200 product line, which includes a wider range of diameters and shapes. The company's stainless-steel tube segment, however was slow during FY23 owing to overall market contraction, experiencing a 31% decline in sales compared to the previous year.
INIL's sustainability efforts
On the sustainability front, INIL plans to increase the solar energy capacity to reduce reliance on expensive energy sources. INIL has installed a 1MW solar plant at its Karachi factory and plans to add an additional 4MW of capacity in Karachi and Sheikhupura. This includes 2 MW addition in the coming days and another 2 MW after that.
INIL’s management shared that it has ventured into the green-house farming market, securing an order for sheds covering an expansive 22,176sq. ft. This project is supported by the World Bank with a commitment of US$50mn. Management's focus has also been on improving working capital by reducing average inventory and trade receivables, achieving a receivables turnover of ~23 days. The management shared that INIL imports HRC and some CRC as well. The company bought 30KT of CRC from ISL during FY23, catering to 30% of its requirement whereas the rest was met with imported CRC.
Focused on exploring new markets for exports
Management shared that it faced drop in exports last year as its traditional markets like Sri Lanka and Afghanistan were facing an economic slowdown. The group has been exploring new markets and has identified Romania, Greece and Gulf region countries as having immense potential for exports of steel products.
Volumes to continue to witness pressure going forward
We anticipate that the pressure on sales volume will persist in FY24 due to fiscal consolidation. The company's primary clientele comprises manufacturers in the electrical appliances, bike, and construction sectors. These sectors have experienced subdued demand recently. The expected challenges in FY24 earnings, combined with an uncertain near-term demand outlook, are likely to limit the short-term performance of the stock. Nevertheless, as the macroeconomic situation improves, a more favourable demand outlook could create opportunities for INIL to expand.