Amreli Steel Limited

The company was established in 1972. A dozen years after its founding, it emerged as the first automatic rolling mill of the country. Since then it has been a pioneer in the domestic steel industry many times over. In 1989, it became the first in the domestic industry, to introduce deformed steel bars. By 1993, it was producing more than 50,000 tons of rebar per year. This capacity was further increased to 180,000 tons per year, in 2007. The next year, Amreli Steel had introduced Thermo Mechanical Treatment technology. In 2009, the company added a melt shop to its facilities which enables it to manufacture its raw material, steel billets.
Overview
At present, the company has the capacity to produce 180,000 tons of rebar per year through its re-rolling mill located in SITE, the largest bar mill in Pakistan. This is a fully automatic and continuous line that uses state of the art technology. It is capable of producing rebars ranging from 9.5mm to 40mm, in diameter. The company was the first to introduce Thermo Mechanically Treated re-bar technology which lets it produce high-strength deformed re-rolled bars. The facility is ISO 9001 certified and also boasts various other certifications and accreditations and awards.
The company also has the capacity to produce 200,000 tons of billets per year at its facility in Dhabeji. This makes it the largest steel melting plant, of the country's private sector. The steel melting plant is located at the company's facility in Dhabeji, on 65-acre premises. The company's new production facilities shall also be erected at this site, for which work is ongoing. The same site also houses a 1600 tons scrap shearing machine.
The company has announced plans to offer its shares to the general public in October. The funds raised are to be used for the expansion of Amreli Steel's production capacity. Details of the intended IPO are listed subsequently. It is pertinent to note that the company has already entered into an agreement with Primetals Technologies; a joint venture between Siemens VAI and Mitsubishi, for the supply of a new rolling mill.
Financial performance
The company has posted a cumulative annual growth rate of just over 30 percent since FY10. During this period, its gross margin has oscillated in the range of nine percent to 13 percent. This expansion has allowed the company to spread out its administrative expenses which have consequently reduced as a proportion of its top line. Meanwhile the company's distribution expense has remained at about two percent of its top line. Soft input prices are also expected to help keep the cost of production in check, in the foreseeable future.
Finance costs have trended lower over the previous five years. A dovish monetary outlook for the domestic economy bodes well for maintaining this tally at or below current levels. As per company sources, this proportion is also set to decline on the back of equity injection from the share issue.
However, according to company sources, net margins are expected to improve considerably as a result of the establishment of new manufacturing facilities which shall increase sales volume and margins by reductions in variable and fixed cost per unit.
Thanks to its fast-paced growth and intact margins, the company has posted successive improvements in its return on equity as depicted in the graph. Amreli Steel management asserts this return is also set to post impressive improvements as a result of the ongoing expansion. According to an official statement by the company; "economies of scale and new technologies will help the company cut manufacturing costs, spread fixed costs and as a result, expand margins going forward."
Public listing
The company intends to issue 74.25 million Ordinary shares which represent 25 percent of the total post-IPO paid-up capital of the Amreli Steel Limited. The shares shall have a face value of Rs10, each. Three-fourths of these shares shall be sold through a book building exercise with a floor price of Rs24 per share. Thereafter, a strike price shall be determined as a result of this exercise. That price shall be used to offer the remaining one-fourth of the intended share issue, through a general public offering.
Talking to BR Research, company director Hadi Akberali informs that the principal purpose of this share issue is to raise funds for the expansion of the company's manufacturing facilities by increasing the company's steel rebar capacity from 180,000 to 480,000 tons and billet capacity from the current 200,000 tons per year, to 350,000 tons per year.
The management has entrusted Bank Alfalah and AKD Securities to act as Joint Lead Managers and Arrangers of the Initial Public Offering. The latter is also the Book Runner for the book building portion of the IPO. Relevant regulatory approvals have already been provided by the Securities and Exchange Commission of Pakistan as well as the Karachi Stock Exchange. The book building is scheduled to take place on October 7-8 while the general public offering shall take place on October 27-29.
The IPO carries significant lure for prospective investors, other market participants as well as other companies that aspire to offer their shares to the general public. Foremost, the company boasts the largest selling brand of steel bars which have enjoyed a dominant position in the domestic market for about three decades. The prospect of investment into a prominent firm from the steel industry appears attractive for investors; especially given the context of freshly announced infrastructure projects under the China-Pakistan Economic Corridor (CPEC) and growing demand from the real estate sector. The IPO is also interesting as it is the first to follow changes to the relevant rules and regulations by the apex regulator. The SECP has recently beefed up transparency in the IPO processes.
At present, Mughal Iron and Steel Limited, International Industries Limited, Aisha Steel Mills Limited, Crescent Steel & Allied Products Limited; are among the major listed companies in the sector. Amreli Steel Limited is considered a blue chip of the domestic steel industry and its public listing is expected to generate significant interest in the market.

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AMRELI STEEL LIMITED

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Rs (In millions)         FY10   FY11   FY12   FY13   FY14   9MFY15

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Sales                    4103   5432   7209  10622  11962    10585

Cost of sales            3704   4959   6243   9460  10590     8891

Gross profit              400    473    966   1162   1372     1694

Distribution cost          43     54     95    170    194      221

Administrative expense     98    113    154    154    160      145

Other operating income     42     19     14      2     20       21

Operating profit          303    326    732    842   1041     1349

Finance cost              304    256    589    652    631      537

Other charges              23      8     13     16     30       61

Profit before tax       -24.4     62    130    174    380      751

Tax                       128     60     40     67    128      171

Profit after tax          104      2     90    108    252      580

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Source: Company accounts.

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