Karachi, November 30, 2021 (PPI-OT): AGHA: Corporate briefing session key takeaways
Agha Steel Industries Limited (AGHA) held its corporate briefing session today to discuss FY21 results and outlook of the company. We present key takeaways from the session.
Agha Steel Industries Limited (AGHA) held its corporate briefing session today to discuss FY21 results and outlook. The company posted a profit of Rs2.0bn (EPS: Rs3.4) in FY21 compared to a profit of Rs1.2bn (EPS: Rs2.0) during SPLY. Primary reasons for the increase in company’s profitability were higher volumetric sales. Company reported gross margins of 23.2% and 22.7% for 1QFY22 and FY21, respectively.
Scrap import by major players increased by 50% YoY in 1QFY22 while overall import of scrap decreased by 31% YoY during the outgoing quarter, which depicts that the large players have an advantage over small players due to better access to capital and ability to operate amid higher freight costs.
Local billet and rebar prices are at a discount to imported billet and rebar. Billet prices in the local market are around Rs165,000/ton whereas landed cost of imported billet is Rs195,000/ton. On the other hand, rebar prices are Rs~193,000/ton compared to landed price of Rs236,250/ton (excluding dealer margin).
AGHA is under the process of installing a Micro Mill Danieli (Mi.Da) Rolling mill which would enhance the rebar capacity from 250,000 tons/annum to 650,000 tons/annum. 70% of the cost has been incurred on the project whereas, 65% of the project has been completed. At present, the company is in the process of issuing a Mechanical tender whereas, all tender LCs are in place. Mi.Da plant enables a company to manufacture rebar directly from scrap and has a higher yield (99% vs AGHA’s current yield of 94%).
Post Mi.Da coming online, the company would become competitive internationally and hopes to tap the export market at some point in the future.
With regards to inland freight costs, AGHA has an advantage over its peers due to its plant being at Port Qasim. Steel players from the North pay around Rs3,500-4,500/ton to transport raw material.
The company has a dynamic scrap mix, where Direct Reduced Iron (DRI) ranges in between 60-85%.
Company has an inventory turnover of 80-85 days.
AGHA steel primarily caters to demand in the southern region with 75% of sales coming from South and remaining from North.
The company plans to become the first Green Steel manufacturer in the country by year 2025. AGHA has already started working on it and a Solar plant of 2.25MW is expected to come online in CY22. Another solar plant with a capacity of 3.5MW is planned after that. The company currently utilizes grid for its power requirements and has a 132KV connection on KE network.
The company believes that higher inflation and continued Pak-rupee devaluation are key concerns and if steel players are not able to fully pass on the impact to end consumer these would impact margins in the coming quarters. For finance costs, company estimates a negligible impact of around Rs10-13mn for every 1% increase in interest rates.