International Steels’ profit falls 73% to Rs465 million

Decline was led by drastic contraction in gross margins


Usman Hanif January 28, 2020
Representational image. PHOTO: REUTERS

KARACHI: International Steels Limited reported a 73% decline in profit to Rs465 million during the six month period ending December 31, 2019 compared to the same period of previous year owing to a drastic fall - of almost 50% - in gross margins.

The company reported a profit of Rs1.7 billion in the same period of 2018, according to a notice sent to the Pakistan Stock Exchange (PSX) on Monday.

Accordingly, earnings per share (EPS) of the steel manufacturer stood at Rs1.07 against Rs4.02 in the same period of last year.

“Gross margin of the entire steel industry have declined to 7%, which averaged at 14% to 15% two years ago,” said JS Global analyst Arsalan Ahmed. “There is no demand of steel from the automobile sector due to a slowdown in the economy.”

He added that the supply side pressures further worsened the situation.

Ahmed pointed out that International Steels had enhanced its capacity from 550,000 tons per year to one million tons per year.

He said that Pakistan imported galvanised steel and cold rolled coils, which covered around 30% of the total demand.

“Keeping all of these factors in mind, the company gave discounts on its revenue, which was why the profit was lesser despite sales being the same this year compared to 2018,” he said.

The steel manufacturer recorded sales of Rs25.4 billion in the July-December period of 2019 against Rs25.8 billion recorded in the same period of last year.

The analyst outlined that the company had started exporting steel to compensate for lack of local demand.

“Exports may fill the gap created by lack of local sales but companies have to compromise on pricing because the international market is highly competitive,” he said.

“This is the most important factor behind the plunge in profit as exports offer minimal profits to steel manufacturers,” he said. “The company is exporting huge quantities to African countries such as Egypt and Ethiopia.”

Though local sales in Pakistan accompany heavy duties still they are more profitable compared to selling in the international market, the analyst said.

“The economic slowdown in the country has caused local sales to become sluggish hence companies in the steel industry are heading towards exports to cover their fixed cost,” he said.

Quarterly result

In the second quarter of FY20, the company posted a profit of Rs118 million against Rs907 million in the corresponding period of 2018, a plunge of 87%.

Accordingly, earnings per share clocked-in at Rs0.27 against Rs2.09 in the same quarter of 2018.

Net sales of the company during the quarter were recorded at Rs13.8 billion compared to Rs14.2 billion in the previous year. 

Published in The Express Tribune, January 28th, 2020.

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