International Steels posts 23% drop in profit to Rs907m

Decline is due to discounts on local sales, lower margins on exports and gas price hike

KARACHI: International Steels (ISL) recorded the lowest margins in the past 12 quarters and its profit dropped 23% to Rs907 million for the second quarter ended December 2018 compared with earnings of over Rs1.18 billion in the same period of previous year.

The decline came on the back of discounts on local sales, lower margins on export business and hike in gas prices. Earnings per share (EPS) of the company dropped to Rs2.09 in the Oct-Dec 2018 quarter, down 23% as compared to Rs2.71 in the corresponding period of last year. The earnings were in line with market expectations of Rs2.1 per share, said Elixir Securities’ analyst Sharoon Ahmad.



He said there were significant variations where topline of the company exceeded market expectations. “Gross margins shrank significantly in comparison with our expectation of no change, finance cost was lower than our projection and 4% tax reversal was booked likely on account of BMR tax credit (Rs540 million available) with new CRC plant’s commercial operation date.”



Its margins dropped to a 12-quarter low at 10.7%, down 6.9 percentage points year-on-year, due to discounts on local sales, lower margins on export business and hike in gas prices with effect from second quarter of FY19, according to a research report of Topline Securities.

Moreover, the decline in margins was offset to some extent by tax reversal of around Rs280-300 million.

Net sales of the company went up 18% to Rs13.6 billion in the Oct-Dec 2018 quarter mainly due to increase in sales volume and hike in cold-rolled coil (CRC) prices.

Cost of sales rose 27.8%, which squeezed gross margins in the quarter under review. Finance cost increased 157% to Rs306.49 million, increasing the burden on expenses. Distribution expenses were up 30% to Rs133 million amidst increase in transportation cost.

“We attribute this (tax) reversal on account of utilisation of remaining rebate on the commencement of a new line,” said Topline Securities’ analyst Shankar Talreja. The company’s half-year profit decreased 20% to Rs1.8 billion against Rs2 billion in the same period of last year.

Published in The Express Tribune, January 26^th, 2019.

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