Morning Call about Aisha Steel Mills Limited

Karachi, June 27, 2012 (PPI-OT): Poised to gain from huge CRC supply deficit

Aisha Steel Mills Limited (“ASML”), a state-of-the-art Cold Rolling Coil (“CRC”) mill with a name plate capacity of 220k tons per annum.

According to Arif Habib Limited, the plant, spread over an area of 50 acres, is strategically located closer to its downstream industries at Pakistan Steel Mills near Port Qasim. The plant is in trial production phase and is expected to announce commencement of commercial operations in the first week of July 2012. The sponsors of the company are divesting their 3.73% stake (10mn shares) through offer for sale at par value of PKR 10/share. This offering will be done on July 3rd and July 4th 2012.

The Sponsors of the Project

Aisha Steel Mills Limited (“ASML”) is a joint venture between renowned Pakistani and Japanese groups namely Arif Habib Group (51%), Metal One Corporation (19.4%), a subsidiary of Mitsubishi and Universal Metal One (12.6%). Metal One Corporation (MOC) is the world’s largest steel trading company ; giving ASML a competitive edge in terms of sourcing HRC and marketing CRC.

Offer for Sale Details

All the three shareholders of the company are offering 10mn shares at PKR 10 each to the general public. The company has already raised PKR 234mn through Pre IPO by issuing 23.4mn new ordinary shares @ PKR 10/share to the various banks and mutual funds. The company had also issued 75.8mn convertible preference shares of PKR 75.8mn which were subscribed by Arif Habib Corporation.

Flexible capacity; an added advantage

ASML was incorporated to setup a CRC facility with a nameplate capacity of 220ktons. It is also pertinent to mention here that the above capacity specification is based on the strict Japanese standards with CRC gauge of 0.5mm. Pakistani market however dictates that the predominant local demand for CRC is of 1.0mm thickness on average. In view of this, ASML’s management believes that the Company’s plant can easily be operated at 269,000 tons p.a capacity. The machinery installed is brand new and sourced from top of the line suppliers of Japan and Austria. The total cost for the project is PKR 9.38bn and it is financed through debt : equity of 65:35

Electrolytic Cleaning Line; giving the competitive edge

ASML will be producing CRC through Hot Rolled Coil (HRC), which is to be procured from different countries. The manufactured CRC will be of the finest quality which could be used in automotive, engineering and home appliances sectors. The company’s management intends to employ a network of distributors and dedicated wholesalers across the country in order to effectively tap into the market and thus guaranteeing the supply of CRC into the market at large. It will be the country’s first CRC mill to be equipped with an Electrolytic Cleaning Line, which will completely remove oil, iron powder or other unwanted materials from the CRC. This will enable ASML to cater the demand of Auto manufacturers and other high end consumers who currently rely on imports.

      ASML ASML  
  Production -        
Sector 2008 2009 2010 Target %
Automobile and Allied

90

60

70

45

20%

Engineering

250

268

285

110

50%

-PipeMills

50

40

55

20

9%

-IIL’s GI

-

-

20

-

Drum

15

10

10

10

5%

Traders

185

218

200

80

36%

Home Appliances

55

50

62

35

16%

Packaging

55

50

50

30

14%

Total

450

428

467

220

100%

Source: Company Presentation

Power supply through dedication line

ASML will be supplied 16.5MW through 132KVA national grid line by KESC. This national grid comes under priority for the distribution company; hence for the past 10 years it witnessed a outage of only 6 minutes. The company has inked agreement with SSGC for supply of 1.7mmcfd gas to meet is energy requirement. It is pertinent to mention that a CRC mill can only operate on the national grid due to high torque.

Poised to gain from huge CRC supply deficit

Pakistan has the lowest per capita steel consumption of 14.8 kg, compared to regional average 243kg and world average 220kg. The demand for steel in Pakistan has constantly been on a rise. At present, there are only three players in the industry producing flat end products, namely Pakistan Steel Mills (PSM) , International Steel Mills Limited and Aisha Steel Mills Limited. Estimated demand for CRC during FY11 was approximately 467,000 tons against local supply of 175,000 tons. Given this annual deficit of 300ktons, coupled with dire financial straits of PSM (PSM’s plant is currently operating at minimum capacity), ASML is ideally poised to make full use of its 220,000 tons capacity and replace imports which are 70% of total supply.

Future Expansion Plans

The Company intends to expand its current production capacity by installing additional 4 bells in Batch Annealing and also plans to establish a service centre, catering to the demand of cut to size sheets. These will add substantial margins to the company’s profitability with minimal capital expenditure.

Financial Highlights PKRmn FY13 FY14 FY15 FY16 FY17
Net Revenue

13,032

16,980

20,088

20,953

21,588

Gross Profit

1,208

1,560

1,898

1,975

2,044

EBIT

1,055

1,394

1,721

1,792

1,857

Profit After Tax

134

246

478

834

1,054

EPS

0.5

0.92

1.78

3.11

3.93

Balance Sheet

Non Current Assets

9,196

8,783

8,451

8,162

7,873

Current Assets

5,498

6,249

7,564

8,322

9,560

Total Assets

14,694

15,032

16,015

16,484

17,433

Non Current Liabilities

5,410

4,322

3,278

2,261

1,357

Current Liabilities

6,089

7,269

8,818

9,469

10,269

Total Equity

3,195

3,441

3,919

4,753

5,807

Total Liabilities and Equity

14,694

15,032

16,015

16,484

17,433

Source: ASML

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