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A major player in the flat steel segment, International Steel (ISL) had a sombre end to FY20, turning a profit at year-end, but just. The first quarter of the current fiscal year however is a major shift if there ever was one. The company’s top-line during the quarter grew 36 percent year on year and 63 percent from the last quarter of FY20. During that period, the company recorded a loss of Rs161 million. The half a billion-rupee profit in 1QFY21 looks really sweet by comparison.

The company is fed by demand not only in construction sector wherever flat steel is required, but primarily in the manufacturing industries including automobile and parts, electronic and home appliances as well as telecom sector. Demand diversification by dipping its hands in different jars is important for a steel manufacturer where both demand and margins can thin out very fast. As manufacturing has started on a reliable path to recovery, the company’s revenues have also grown.

To demonstrate, in July-Aug period, production of tractors, motorcycles, air-conditioners, deep-freezers among others grew in double-digits year on year. The company is also shielded from competition to an extent due to regulatory duties as well as anti-dumping duties on flat steel products which allows it to fetch favourable prices in the market.

Margins however, depend on global prices for different steel inputs including and primarily Hot Rolled Coils (HRC) as well as the rupee’s parity against the greenback. The company’s margins have slid to single-digits, perhaps due to the pricing of its contracts with HRC suppliers and more expensive dollar.

A tight reigned-in approach toward overheads (2% of revenue; 1QFY20: 3%) and improved borrowing situation due to reduced interest rates (2% of revenue; 1QFY20: 6%) helped keep the ship above water turning a before-tax profit of nearly Rs900 million.

Post-lockdown, manufacturing was destined to grow faster but the question of demand is how sustainably it would grow. Since flat steel is supplying to the consumer segment (cars, electronics etc.), this would depend on consumer incomes and their purchasing power. Unlike rebar manufacturers selling to the construction industry which has a bright future, buoyed by mega infrastructure projects and government’s amnesty initiative, ISL’s top-line will have to grow organically, and probably way slowly.