Business & Finance Print edition: 2020-10-07

Agha Steel IPO: Brokerages send out ‘subscribe’ calls

Published October 7, 2020 Updated October 7, 2020 02:54am

3 min

By Recorder Report

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KARACHI: With the book-building phase of Agha Steel’s Initial Public Offer (IPO) already under way, a large number of brokerages have sent out ‘subscribe’ calls on what they expect to be the largest listing in the country’s steel sector.

Institutional investors and High Net Worth Individuals with Rs2 million or more are currently bidding for 90 million shares of Agha Steel, a third-generation steel-maker, at the floor price of Rs30 a piece.

The book-building phase will be over by the end of trading hours October 7, 2020. It will determine the strike price at which the general public will buy on Oct 14-15 the remaining 30 million shares on offer. Based on the interest from investors, the strike price can go as high as Rs42 a share.

“We recommend subscribing to Agha Steel’s IPO with a strike price of 42 per share, an implied price-to-earnings multiple of 8.2,” said a research note issued by Khadim Ali Shah Bukhari Securities. It said Agha Steel’s earnings are expected to grow on account of higher sales on the back of increased construction-related activities. In addition, a revival of economic activity post-Covid-19 and an MOU worth Rs10.5 billion that the company signed with Horizon Steel to provide the latter with billets are going to support the bottom line of Agha Steel, it added.

Agha Steel will use IPO proceeds, ranging between Rs3.6 billion and Rs5 billion, to finance the expansion of its re-rolling capacity from 250,000 metric tons to 650,000 MT. It will increase the rebar production capacity by 160 per cent.

According to an investment advisory note issued by Lahore-based brokerage Abbasi and Company, the savings of 20-25 per cent of the total electricity cost, less labour-intensive processes and higher efficiency in terms of technology are some of the competitive advantages that Agha Steel offers owing to its use of an electric arc furnace instead of the conventional induction furnace. It has set the target share price of Rs 44 for June 2021, which provides an upside potential of 47 per cent relative to the floor price of Rs 30 per share. Darson Securities has also released a favourable advisory on the IPO, suggesting its clients that they subscribe to the issue in view of the target price of Rs 40 per share for June 2021. “We recommend subscribing to the IPO at the price of Rs35 per share,” it said.

In a research report released on September 30, Rafi Securities told its subscribers that Agha Steel “looks attractive to invest in” near the level of 35 per share.

According to AL Habib Capital Markets, Agha Steel is “fairly valued” at around Rs 57.03 for June 2022. “We, thus, recommend a subscribe stance for the Agha Steel scrip.”

In its research note for investors, Pearl Securities said the listing of Agha Steel is taking place at a “substantial discount to peers” and recommended that they subscribe to the IPO while keeping in view the target price of Rs 50 per share.

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