Aisha Steel (ASL) commenced its operations on 1st completed its nine month of productivity by June 30, 2013. It was

listed with many hopes but unfortunately some factors badly affect the business as well as the sector as a whole.

Though, ASL plant utilization has increased up to 60% as per industry sources. The current cold rolled coil (CRC) demand is stated to be 500,000tons. We see some positive triggers in ASL.

ASL ~ remained under pressure ASL is currently facing issues regarding custom duty. As Under Free Trade Agreement (FTA) signed with China in 2006 states that there is 5% concessionary Custom Duty for all type of importers hence negatively affecting the local manufacturers. Apart from FTA, ASL is also facing tough competition from pipe mills as they import CRC steel on a custom duty of 5% instead of 10% this concession was given to them when there was only one manufacturer of CRC which was Pakistan Steel Mill. In order tocope with the demand this concession was allotted but now this concession is negatively affecting the CRC manufacturers.

ASL is a highly leveraged company which is currently operating at a gearing of 130%. This has resulted in higher financing cost and

hence creating hurdles for the company. These loans are expected to be repaid in year 2018.Positive Prospect ASL is waiting for the Budget announcement and expecting government to take some positive action regarding the policies relate to local Steel industry.

Pakistan Customs has recommended FBR to impose 10% duty on import of silicon steel which was previously 0% and taking

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advantage of this many importers were importing CRC under the name of Silicon Steel which were badly affecting the industry and

creating a loss for national exchequer. We believe this will be implemented soon hence creating some space for steel sector to breath. Steel sector is also demanding the government to exclude CRC from FTA (Pak-China) as the local industry is wide enough to cater hpw the local demand.

Appreciation of Pak rupee against dollar is also a good sign for the company as it is lowering down the cost of input for the company and this will be reflected in coming quarter result.

ASL has become one of the dominant players in the production of CRC as containing a market share of 33% and we believe this will increase in coming years. Car demand would also impact ECL ASL is stated to start commissioning of Electrolytic Cleaning Line (ECL) with Japanese which is used in the outer skin of the car bodies. This would open great packaging market for ASL’s CRC. The annual demand in Pakistan is stated to be 80,000tons.

Triggers > sales increasing in every quarter

 Removal of CRC from FTA (Pak-China)

 Imposition of 10% duty on import of Silicon Steel

 Appreciation of Pak Rupee Lowering down Cost of Input

 ECL market

 Sales increasing in every quarter

ASL is a joint venture between Metal One (majority owned subsidiary of Mitsubishi Group), Universal Metal

Corp Japan alongside Arif Habib Group.

Even though International Steels Ltd (ISL), another growing company in the sector, is at our recommendation

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list wherein this company is now in profits; we would also keep ASL into our active watch list.

ASL Statistics

Avg Volume (12M) 75,398.00

Close 8.6

52 Week High 10.47

52 Week Low 7.5

Market Capitalization (bn) 2.33

Total No. of Shares (mn) 270.56

source: SCS

Aisha Steel Mill

Profit & Loss Statement

(Rupees in million) 3QCY14 3QCY13 Change (%)

Revenue 2499.5 1723.4 45%

Cost of Sales 2417.6 1713.8 41%

Gross Profit/(Loss) 81.9 9.5 762%

Admin Expenses 27.6 33.8 -18%

Selling & Dist. Expenses 9.7 6.7 45%

Other Operating Income 3.7 7.2 -49%

(Loss)/Profit from Operations 48.2 -23.7 303%

Finance Cost 170.5 273.7 -38%

Loss before Taxation 122.2 297.5 -59%

Taxation 16.9 91.4 -82%

Loss for the Period -105.3 -206.1 -49%

Loss per Share -0.47 -0.86

Source: Company Results

CRC Steel Producers Capacity

Pakistan Steel Mill 100,000.0

International Steel Limited 250,000.0

Aisha Steel Mill Limited 220,000.0

Total 570,000.0

Figures are in metric tonne per anum

*Cold Rolled Coil