1. www.jamapunji.pk1 / 3 pages
Source: Akseer Research
Relative Performance (1-Year)
Source: Akseer Research
EPS & DPS Outlook
–– H
 We initiate coverage on Amreli Steel Limited (ASTL) with a BUY recommendation based on
Jun-17 PT of PKR 100/share offering an upside potential of 48.7% along with a dividend
yield of 3.0%. ASTL is an ideal proxy to Pakistan’s ongoing construction boom.
 We expect ASTL to post FY18-20 EPS CAGR of 48%, driven by better production efficiency at
Dhabeji expansion, five year tax holiday on the equity funded expansion, and volumetric
growth due to an expanded capacity amid weaker economics for imported rebar post
increase in import duties.
 We expect Amreli’s topline to grow at a CAGR of 25% during FY18-20 led by growth in sales
volumes of rebars. We expect volume CAGR of 17% during FY18-20.
 Our forecast for FY17 EPS stands at PKR 4.17, down 13% YoY as we expect weak 1H earnings
to rebound in 2H as imported rebar inventories (industry wide and with ASTL) would likely
clear up by Dec-16 and improve pricing economics. 1QFY17 EPS for ASTL fell 39% YoY.
 Key risks to our thesis include reduction in import duties, increase in international scrap
prices and lower than expected growth in domestic rebar demand.
Valuation and Recommendation
We initiate coverage on Amreli Steel Limited (ASTL) with a ‘BUY’ recommendation, based on a
Jun-17 Price Target (PT) of PKR 100.00/share, yielding an upside of 48.7% along with a dividend
yield of 3.0%. Our PT has been computed using FCFF based Discounted Cash Flow (DCF) valuation
methodology, using terminal growth of 4%. We have used a risk-free rate of 7.5%, beta of 1.00
and equity risk premium of 6.0%, and cost of debt of 8% to arrive at WACC of 12.2%. ASTL’s EPS
is anticipated to increase at a CAGR of 48% during FY18-FY20 on the back of higher volumes and
better margins post expansion in FY18 and further augmented through a 5 year tax holiday on
expansion profits due to the expansion being largely equity funded.
Ideal proxy to the ongoing construction boom
ASTL is well positioned to benefit from expected increase in steel demand from on-going
construction boom in Pakistan, evident from higher local cement dispatches. Increased
construction activities are broad based with rising income levels driving increased housing
demand, and increased infrastructure spending under CPEC.
Dhabeji expansion to drive EPS at a CAGR of 48% during FY18-20
ASTL is setting up a 300k rebar expansion at Dhabeji along with a 150k billet production unit.
The capacity is expected to come online by Sep-17, which would augment volumes in FY18.
Expansion is estimated to cost PKR 3.4bn and would be completely funded through equity.
Key Data
PSX Ticker ASTL
Target Price (PKR) 100
Current Price (PKR) 67
Upside/ Downside (%) 48.7%
Dividend Yield (%) 3.0%
Total Return 51.6%
12 month High (PKR) 76
12 month Low (PKR) 44
Outstanding Shares (mn) 297.01
Market Cap (PKR mn) 20,075
Year End June
Key Financial Ratios
FY14A FY15A FY16A FY17E FY18F FY19F
EPS 2.69 4.54 4.81 4.17 6.84 11.38
EPS Growth 461% 69% 6% -13% 64% 66%
DPS - - 2.00 2.00 2.75 5.00
PER 25.12 14.89 14.06 16.22 9.89 5.94
Dividend Yield - - 3% 3% 4.1% 7.4%
EV/EBITDA 10.44 6.92 7.95 10.36 7.18 5.00
P/B 3.11 2.56 1.49 1.44 1.33 1.13
ROE 12% 17% 12% 12% 17% 24%
Source: Company Accounts, Akseer Research
Amreli Steel Limited
Company Update
Pakistan Research
PSX: ASTL Bloomberg: ASTL: PA Reuters: AMST.KA REN # REP-400R
Ideal proxy to the construction boom
21 December 2016
Suneel Kumar
suneel.kumar@akseerresearch.com

2. 2 / 3 pages Akseer Research (Pvt) Limited
Amreli Steel Limited21 December 2016 Company Update
Source: Company Accounts, Akseer Research
D/Y Comparison (LTM)
Source: Company Accounts, Akseer Research
PE Multiple Comparison (LTM)
We conservatively estimate capacity utilization of the new plant at 34% in FY18 and to
subsequently rise to 97% in FY20. Production from the new plant is expected to be prioritised
due to higher efficiency and expected savings in energy and transportation costs. As a result,
overall capacity utilization is expected to decrease to 50% in FY18 and subsequently increase to
61% by FY20. We expect already applicable custom, regulatory and additional regulatory duties
on rebars to keep a check on imported rebars and help gross margins to improve to 18% in FY18
and subsequently rise to 20% once the production is fully shifted to the new Dhabeji plant due
to added savings on fuel and transportation costs. We expect ASTL’s EPS to grow by 64% in FY18
to PKR 6.84 and subsequently rise to PKR13.52 in FY20 (FY18-20 EPS CAGR of 48%) driven by
volume growth and improved utilization of new plant. We expect ASTL to resume its Site rebar
plant in FY21 as the Dhabeji unit approaches full utilization.
Cost mitigation and tax savings to augment earnings
The hot link between melt shop and re-rolling mill after expansion at Dhabeji is expected to
generate cumulative savings of PKR 2,000/ton of rebar on account of elimination of gas
reheating and transportation cost and therefore increase margins to 20% in FY19 and onwards.
The expansion being 100% equity financed is expected to generate tax savings of PKR6.3bn over
the next five years till FY22.
Trading business to constrain EPS growth in FY17
ASTL posted an EPS of PKR 0.76 in 1QFY17 down by 39% YoY. The decrease in EPS was primarily
due to a substitution of low margin trading rebars in sales mix. Trading bars comprised 16% of
1QFY17 volumes. Additionally, rising international scrap prices further suppressed margins on
manufactured rebars, taking gross margin to 14% down by 5pp YoY. Trading rebars inventory is
likely to be completely sold off by 2QFY17 due to higher demand for rebars on the back of tight
scrap supplies from Gadani ship breaking yard due to fire incident and lack of fresh supplies of
Chinese rebar post imposition of additional regulatory duties. Higher volumes would likely push
2QFY17 EPS to PKR1.37. However, margins will likely recover in 2HFY17 and improve full year
FY17 gross margins to 16% due to expected increase in the prices of rebars in local market on
the back of increase in international prices and clearing up of the existing stock of imported
rebars. We expect ASTL to post an EPS of PKR 4.17 in FY17 down by 13% YoY.
1QFY17 Earnings Performance
Year Ending June 1QFY16 1QFY17 YoY
Net Sales 3,431 3,218 -6%
Cost of Sales (2,778) (2,754) -1%
Gross Profit 654 465 -29%
Distribution Cost (66) (82) 24%
Admin Expenses (49) (70) 42%
Other Charges (29) (18) -36%
Other Income 1 5 471%
Profit From Operations 510 299 -41%
Finance Cost (108) (74) -32%
Profit Before Tax 402 225 -44%
Taxation (70) (0) -100%
Profit After Tax 332 225 -32%
EPS 1.25 0.76 -39%

3. Amreli Steel Limited
3 / 3 pages
21 December 2016 Company Update
Akseer Research (Pvt) Limited
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Pakistan Research Team
Usama Qamar Nizami
usama.qamar@akseerresearch.com
Pardeep Kumar
pardeep.kumar@akseerresearch.com
Sajjad Hussain
sajjad.hussain@akseerresearch.com
Suneel Kumar
Suneel.kumar@akseerresearch.com
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