Amreli: Firing up all cylinders
Amreli’s recovery from losses of last year is at par with profits during FY18. In fact, besides that year, FY21 has turned the highest profits in the past decade. This has been possible with a strong revenue growth on the back of rapid demand recovery, higher prices, and a tight control over finance costs and overheads.
The demand recovery has materialized due to increase in development spending and the revival of construction as builders availed government’s amnesty package to register their stalled projects. With several hydro power projects in the works, and housing and construction being bolstered by government policies, this demand will continue to grow over the next few years.
Rebar manufacturers have also raised prices due to an increase in international scrap prices. Based on company’s volumetric sales reporting during the analyst’ briefing, the revenue per ton sold during FY21 grew by 11 percent year on year. Between the last and the third quarter, Amreli raised prices by 5 percent. On the margins front, these price increases have boded well as costs per ton sold went up by only 5 percent during the year. The company’s margins as a result have improved right into double-digits.
Amreli is also supplying mainly to the retail market (65% share) as opposed to corporate and government segments. Its efforts to brand its steel seems to have yielded the right outcome as volumetric sales (in tons) grew 33 percent during the year. The company is targeting a 15 percent increase in sales over the next year which—given the current climate—is an understated figure. Amreli is set on the demand front. With demand ballooning, the company will continue to have the space to raise prices that would yield even better margins next year.
One component worth mentioning is the finance costs. This burden on profits reduced from 9 percent in FY20 to 4.2 percent of revenues (owing to lower interest rates) which is a significant cut and contributed to the stellar bottom-line. Meanwhile, overheads also reduced down to 4 percent of revenue from 5 percent last year.
Expect Amreli to do well in coming years given demand and price dynamics, not to mention, the shrinking gap between prices of graded and ungraded rebars. However, for consumers, expect cost of construction to continue its current upward trajectory. Amreli is not quitting while its ahead.
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