ISLAMABAD: Pakistan’s steel sector is set to reveal a mixed bag of financial performances for the fourth quarter of FY24, with demand challenges and margin pressures continuing to weigh on several key players.
According to the IMS Research, the cumulative net profit after tax (NPAT) of PKR914 million for 4QFY24, marks a 6.4x quarter-on-quarter (QoQ) increase, which is largely driven by Mughal Iron & Steel Industries Ltd.’s robust profitability. However, this rise comes despite underwhelming performances from International Steels Ltd (ISL) and Amreli Steel Ltd (ASTL).
Mughal Steel: Copper prices to drive earnings surge
Mughal Iron & Steel Industries Ltd is expected to report a significant NPAT of PKR1.21 billion for 4QFY24, a 12x QoQ surge and a 45% year-on-year (YoY) increase. This will bring the company’s FY24 NPAT to PKR2.6 billion, reflecting a 25% YoY decline. The company’s revenues for the quarter are estimated at PKR21.9 billion, up 4% QoQ and 16% YoY, primarily driven by higher non-ferrous sales, which offset weaknesses in the steel segment. The sharp 15% QoQ increase in global copper prices, peaking at US$10,800 per ton, is expected to boost gross margins by 6.7 percentage points QoQ to 13.4%. Mughal is also expected to announce a dividend of PKR1.0 per share, further solidifying its position as a top pick in the sector due to its diversification into copper exports and efforts to reduce reliance on the national grid.
ASTL: Mounting finance costs amid declining demand
Amreli Steel Ltd. (ASTL) continues to face significant financial headwinds, with a projected net loss after tax (NLAT) of PKR866 million for 4QFY24, widening from a loss of PKR666 million in the previous quarter. This will bring the company’s FY24 NLAT to PKR2.2 billion, compared to a loss of PKR678 million last year. Despite stable rebar prices, ASTL’s revenues are expected to decline by 12% QoQ and 9% YoY to PKR9.8 billion, as demand in the southern region fell by 14% QoQ. The company’s gross margins are projected to remain flat at 7.7%, with lower scrap costs offset by rising electricity expenses. Finance costs are expected to soar to approximately PKR1.3 billion, four times the estimated earnings before interest and taxes (EBIT), continuing to be a major burden for the company. ASTL is likely to utilize its deferred tax assets to mitigate tax expenses, similar to the previous quarter.
ISL: Margin compression and rising costs
International Steels Ltd (ISL) is forecasted to post an NPAT of PKR569 million for 4QFY24, reflecting a 19% QoQ and 70% YoY decline. Revenues are expected to reach PKR17.1 billion, up 5% QoQ, driven by a modest increase in volumetric sales, particularly due to an 8.5% rise in two- and three-wheeler sales. However, the decline in international cold-rolled coil (CRC) prices by 8% QoQ is anticipated to negatively impact export revenues. The contraction of the CRC-hot-rolled coil (HRC) spread by 24% QoQ, from US$93.5 to US$71.5, is expected to reduce gross margins by 0.6 percentage points to 11.1%. Finance costs are projected to rise by 27% QoQ to PKR220 million due to increased short-term borrowings. Despite these challenges, ISL is expected to declare a dividend of PKR1.5 per share, with a full-year payout of PKR4 per share.
As the steel sector navigates these ongoing challenges, the focus remains on companies like Mughal, which are leveraging diversification and strategic growth in non-ferrous segments to bolster their financial performance amid a tough operating environment.
