Karachi, December 15, 2022 (PPI-OT): AIRLINK: All eyes on the ease of import restrictions

Air Link Communications Limited (AIRLINK) held its Analyst Briefing yesterday to discuss the company’s financial performance and future outlook.

Despite flat consolidated sales and improved gross margins, company’s profits for 1QFY23 have declined 27% YoY primarily due to higher financial charges.

Going forward, management expects sales to report growth in terms of both, value and volume, as the company expects the government to ease the restrictions on imports in the near future.

Higher finance costs weigh in on 1QFY23 profits

AIRLINK’s consolidated net sales during 1QFY23 clocked in at Rs9.4bn, flat on a YoY basis as company managed to maintain sales similar to same period last year despite tough macro conditions and import restrictions impacting production of assembly lines. During 1QFY23, amid import restrictions on SKD and CKD kits, local assemblers operated at lower utilization levels. Consolidated EPS during 1QFY23 clocked in at Rs0.77, down 27% YoY primarily due to higher financial charges.

Xiaomi contribution subject to import restriction ease

AIRLINK commenced operations of its mobile assembly plant for Xiaomi during FY22, in addition to the existing mobile assembling facility for Itel and Tecno phones. Company incurred a capex of Rs1.7bn to increase the capacity of locally assembled phones leading to higher import substitution. The new assembly lines are expected to result in margin expansion and improvement in working capital cycle especially post ease in import restrictions and discontinuation of the 100% cash margin requirement, coupled with benefits of vertical integration.

The management shared that the industry is in talks with the government and has urged to relax these limitations. The present quota for CKD and SKD kits imports is around 40%, management believes that at 100% allowance the topline will have a 2.5x impact and will likely take it to the +Rs100bn mark. Company shared that both its assembly plants are running at 40% capacity utilization at present. Management is of the view that assembling operations under its subsidiary Select technologies will start to contribute as import restrictions ease.

Volumes to improve ahead

Sales are expected to improve in terms of both value and volume as import restrictions ease. Management believes that a growing population with an increased dependency on smartphones in all fields and an increasing 4G subscriber base make a strong case for demand for mobile phones in the country. Company is also working to improve its E-commerce platform which will help increase customer reach through utilization of alternate delivery channels such as online sales and electronic media and will likely help improve margins.