Crescent Steel and Allied Products Limited – BR Research


Crescent Steel and Allied Products Limited (PSX: CSAP) was established in 1983 as a limited company under the Companies Act 1913 (now Companies Act 2017). The company operates in five divisions: steel, cotton, investment and infrastructure development (IID), energy and hadeed (notes) segments.

Ownership model

As of June 30, 2021, approximately 21% of the shares are held in associated companies, businesses and related parties. In this category, The Crescent Textile Mills Limited is the largest shareholder holding 11% of the shares. The local general public owns 39% of the shares, followed by 18% of the shares held in other companies (local and foreign). Directors, CEO, their spouses and minor children own nearly 2% of the shares, while 13.5% of the shares are held in banks, DFIs and NBFCs. The remaining 7% of shares belong to the rest of the shareholder classes.

Historical operating performance

Company revenue in FY18 fell by 31% from Rs 10.2 billion in FY17 to Rs 7 billion in FY18. Out of this 7 billion rupees, the steel segment contributed 6 billion rupees. However, the steel segment itself also saw a 31% drop in sales due to a slowdown in projects. In addition, prices also remained volatile for HRC. They increased by 7% during the year. For the steel division, gross margin decreased to nearly 13%, while also cumulatively gross margin was lower at 11.5%, compared to over 18% in FY17, the cost of production increased to 88.5% (EX17: 81.79%). On the contrary, net margin was higher at 10.7% as investment income reached Rs 496 million for the year.

Revenue again fell by more than 42% in FY2019 to Rs 4 billion in value. The steel segment, which is the largest contributor to revenue, saw a decline of 61%. Prices remained volatile as they recorded a 12.5% ​​increase. Despite this, the division’s gross margin fell to nearly 5%, while cumulatively for the business; the gross margin was again lower at 5.4 percent. With production costs consuming nearly 95% of revenue and a decline in other income as well as investment income, net margin fell to 3.5%, the lowest since fiscal 2010.

Topline declined for the third consecutive year in FY20, down 6%. Steel division revenues fell again by 46% while cost of production consumed almost all revenue, low order intake caused steel division gross margin to drop to 2.6%, while that overall for the company it was less than 1.3%. In addition, administrative and financial expenses together accounted for more than 14% of revenue due to increased salary expenses and higher interest charges on non-Sharia compliant arrangements for managing finances. Despite the fairly strong support from investment income at Rs 389 million, the company posted a net loss of Rs 17 million.

After declining for three consecutive years, revenue increased by nearly 90% in FY21 to cross Rs 7 billion. This was attributed to an improvement in demand for steel tubes and billets which nearly doubled. Energy infrastructure development projects contributed significantly to the company’s growth during the year. Additionally, with production costs reduced to 93% of revenue, gross margin improved significantly to 6.8%. Additionally, other income reached Rs 196 million from Rs 35 million in FY20, providing further support to net income which stood at Rs 352 million for the year, with a margin net of 4.8%. The increase in other income is largely due to the unrealized gain on investments at FVTPL.

Quarterly results and future outlook

First quarter FY22 revenue decreased 37% year-on-year. The steel division suffered a loss for the quarter while the cotton division saw a significant improvement in profitability to net profit of Rs 97 million against 14.5 million for the corresponding period last year. Overall, the company suffered a loss for the quarter of Rs 49 million as the cost of production soared to nearly 96% of revenue from 85.6% in 1QFY21. This was due to an increase in the cost of raw materials.

Revenue was also down year-over-year in the second quarter, down nearly 22%. The steel division continued to suffer losses while the profit of the cotton division increased to 168.2 million rupees for 1HFY22 from 75 million rupees in 1HFY21. The loss of the steel division was attributed to rising steel prices as well as supply chain disruptions. In addition, the factory also remained inactive, which resulted in the non-absorption of fixed costs. Overall, the company posted a net profit of Rs 932 million which was mainly supported by investment income (Rs 1.1 billion), the absence of which would have resulted in a loss for the quarter.

The third quarter saw an increase in revenue of nearly 29% year-on-year. A similar trend followed, with the cotton division contributing to better margins, while the steel division recorded lower sales, as well as a pre-tax loss. Cumulatively, the company incurred a loss for the quarter as production costs consumed 98% of revenue. Overall, 9MFY22 saw net margin improvement driven by investment income. In the steel division, the company anticipates pent-up demand will emerge, while the cotton division is benefiting from support programs. However, rising commodity prices will hurt profitability.


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