By: Pearl Securities Limited
Amreli Steels Limited share price has increased by ~18% since it has started trading in bourse at PKR 51 per share.
In 1QFY16, the company has earned PKR 331 mn (EPS: PKR 1.49) against the earnings of PKR 130 mn (EPS: PKR 0.59), registering a colossal growth of 154% YoY. We expect EPS FY 16 to be PKR 4.5.
This massive growth in earnings was witnessed due to 500 bps hikes in gross margin and 600 bps in net margins respectively, followed by 1.42 x surges in other income.
The firm shows outstanding sales CAGR of 30% over the past five years. CAGR for EBITDA stands at 32% over the same period.
ASTL has accumulated ~PKR 3.67bn (excluding underwriting cost) against the required capital expenditure of PKR 3.376bn through successful IPO.
We remain skeptical about the earnings quality due to increase in net accrual earnings of ASTL. (Refer to page 5 for details).
We maintain “Buy” call on the scrip with the target price of PKR 71 per share by Jun’16, giving the capital gain of whopping ~20%.