Amreli Steel Limited (ASTL)– Deteriorating GP Margins and higher other charges magnified losses; LPS at PkR 1.26/sh

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-Amreli Steel Ltd (ASTL) announced its 3QFY20 result today posting Net Loss after Tax of PkR 379mn (LPS of PkR 1.26/sh) compared to net loss of PkR292mn (LPS of PkR 0.99/sh) reported in 3QFY19. The result was below market consensus of LPS of PkR 0.48/sh. Losses were magnified due to shrinking GP margins higher selling and distribution expenses and increase in other charges.

-For 9MFY20, the company reported loss after tax of PKR688mn (LPS of PkR 2.32/share), compared to Profit after tax of PkR225mn (EPS of PkR0.75/sh) in 9MFY19. As expected, the company skipped the cash payout for the period.

-Higher than expected losses were due to shrinking gross profit margins, down to 6.4% in 3QFY20 from 7.9% in 2QFY20, higher selling and distribution expenses, which shot up by 36%Q/Q to PkR213mn, and higher other charges, which came in at PkR129mn. We suspect higher other charges are on account of exchange losses due to currency depreciation (PKR depreciated 7.5% in last 15days of the quarter).

-Sales revenue increased 21%Y/Y and 3%Q/Q to PkR7.7bn. Cost of sales increased 19% Y/Y and 4%Q/Q to PkR7.3bn shrinking the GP margins by 1.5ppts Q/Q. we await for detailed accounts to get a better sense of shrinking GP margins.

-Selling and distribution expenses increased 39%Y/Y and 36%Q/Q to PkR213mn. Moreover, other charges came in at PkR129mn compared to PkR7mn in 2QFY20 providing further drag to earnings.

-Financial charge surged 58%Y/Y but declined 13%Q/Q to PkR583mn. We suspect ASTL has retired some of its short term borrowing on sequential basis.

-Lastly, ASTL recorded a tax reversal of PkR210mn in 3QFY20 against tax reversal of PkR52mn in the 3QFY19 and a tax reversal of PkR181mn in2QFY20, acting as a minor breather for the company.

-We await the detailed account and the management’s input regarding the: 1) decline in the GP margins; 2) increasing cost of sales 3) increasing in other charges; and 4) guidance on sales target going forward.


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