Amreli Steels (PSX: ASTL) announced its half-year accounts ending December 2016 marking a less than encouraging period for the company this fiscal year. Revenues grew by 20 percent clocking at Rs6.5 billion in 1HFY17 against Rs5.45 billion in 1HFY16. However, higher manufacturing costs driven by an increase in scrap prices and customs duty on imported scrap together contributed to 32 percent higher costs year-on-year. This pressured margins greatly bringing them down from 23 percent to 16 percent in 1HFY17.
Less gross profit trickled down to squeezed net profits. After-tax profit fell by 12 percent in 1HFY17 year on year clocking at Rs482 million against Rs549.6 million.
During the first quarter, it was pointed out that production had declined and the company was selling off low margin trading stock. Amreli was expected to have cleared the inventory stock by the end of the second quarter after which production is expected to go up. The rest of the year might fare better news.
The Dhabeji expansion project plant which would take existing capacity from 180,000 tons to 450,000 tons per annum is expected to start commercial operations by September 2017 which makes long term prospects for Amreli positively strong. In the short term, it is expected that production will go up while prices for steel will be bumped up as coal prices are rebounding which would ultimately assist in persevering Amrelis bottom line. Either way, the demand is on Amrelis side.
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