CREDIT MEMO

Credit Memo
PURPOSE:
The purpose of this CSA is to
a) finance Aluminum Recycling Project of PKR 890.00 M with D/E component of 70:30, with
AKBL participation upto PKR 620.00 M under TF facility.
Current package is raised to consider the following facilities
 Long Term Finance Facility upto 03 years with grace of 1 year.
 Non Funded Facilities as sub-limit for procurement of Machineries & Civil works

Project is considered and reviewed on strength of the balance sheet; however, transactional
participation through D/E stands as 70:30

b) Enhancement in existing ILC-Sight line by PKR 900.00, bringing it at par with LC-Sight facility
along with realignment of expires.

It is worthy to notify that; historically total exposure of funded and Non-funded lines have had
reached upto the level of PKR 3,000.00 Million. Till date the conduct of account has been satisfactory
with sizeable reciprocation of business and timely settlement of liabilities with no major instances of
overdues in account.

BRIEF COMPANY BACK GROUND:

Amreli Steels Limited (“Amreli” or “ASL”) incorporated in 1984 as a private limited company and
since its inception, the company has grown from a family business to one of the most prestigious
companies listed on Pakistan Stock Exchange. ASL is one of the largest manufacturers of steel
reinforcement bars in Pakistan relying on economies of scales, brand preference and country wide
distribution network.
The Company achieved capacity expansion of melting from 400,000 tons to 600,000 tons in June
2019 and rebars manufacturing capacity from 180,000 tons to 605,000 tons in June 2018. Rebar
capacity will be further enhanced to 1,105,000;
Details of Company’s operational facilities:
Existing Capacity
Rolling Mill 425,000 M.T Per Annum
Dhabeji
Melt Shop 600,000 M.T Per Annum
S.I.T.E Rolling Mill 180,000 M.T Per Annum

RATIONALE FOR THE REQUEST:

Amreli Steels Limited aims to establish an aluminum recycling plant with an initial annual production
capacity of 18,700 MT. The plant will be positioned as Export Orient business and will be located
within the current premises of the existing ASL plants i.e. Dhabeji, District Thatta, Karachi as separate
piece of land will be carved out from the existing facility. New plant will be developed under Export
facilitation Scheme i.e. DTRE (Duty & Tax Remission for Exporter), which will allow the company to
import aluminum scrap without any import duty (0% custom duty).

The process flow would initiate with raw material i.e. bauxite (aluminum ore) / scrap will be
imported to Pakistan from Turkey & China which will be used to produce aluminum ingots.
Aluminum is a resource, which can be recycled and reused over and over again. These will then be

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recycled to produce secondary aluminum alloy (ADC 12) in the form of ingots then exported to
various global markets like China etc. Aluminum alloy (ADC 12) serve as a raw material to various
automobile and motorcycle parts specifically to Car/Bike Cylinder Head, Auto Gear Boxes, Sensor
Brackets & Motor Covers/Housings etc. Due to environment concerns, manufacturing capacity in
China are getting limited while demand for various aluminum alloys is increasing. The company is
targeting to close the procurements under the project during 02 nd half of 2022 with an expected COD
during June 2023.

Aluminum Plant & Machinery Detail:

Annexure-A attached

Project Cost:
The estimated project cost is as follows:
(All amounts in
PKR)
Total Project Cost 890,000,000.00
Total Equity 267,000,000.00
Total Debt 623,000,000.00

Total Capex Requirement (All amounts in PKR)

Plant & Machinery* 500,760,000.00
Civil Works 389,000,000.00
Total Capital Cost 889,760,000.00
*USD/PKR PARITY ASSUMED @ RS 195= $ 1
* COST OVERRUN IF ANY TO BE BORNE BY COMPANY ITSELF

TRANSACTION KEY TERMS AND CONDITIONS

TOTAL PROJECT COST UPKR 890 Million
DEBT TO EQUITY 70% debt: 30% equity (Participation under transaction)
REQUIRED FACILITY/DEBT AMOUNT PKR 620 Million
AKBL’S PROPOSED PARTICIPATION Term Loan Up to PKR 620 Million
TENOR 3 years inclusive of a one-year grace period
GRACE PERIOD One (1) year from the end of availability period on principal portion
only.
AVAILABILITY PERIOD Up to one (1) year from the date of 1st draw down.
DRAWDOWN METHOD Drawdown to be allowed in bullet or in any number of tranches
during the Availability Period.
PRICING BASE RATE 3MK + 0.75%
PRINCIPAL REPAYMENT Eight (8) consecutive equal quarterly principal repayments
LC COMMISSION Commission of 0.05% per quarter for inland and foreign letters of
credit. The LC Commission will be recovered quarterly in advance on
the outstanding balance of the LC Facility.
SECURITY 1st Pari Passu Charge over all Present & Future Fixed Assets of the
company with 25% margin.

ANCILLARY ARRANGEMENT AKBL will have exclusive 1 st right for routing of exports under the
project from date of initiation of exports in the following manner:

100% for the first year

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75% for second year

50% for third year

 Evaluation of the Project is being made on Balance Sheet Financing

 As per December Figures leverage stands at 1.81 x, incorporating the capex debt level
increased to level of 1.85x which is still below 2

Rational for Availability period and Grace Period:

Availability period of one year has been granted to support the import and installation of plant and
machinery/Civil Works. As per the transactional flow, LCs are established for procurement of main
P&M/ Civil Works with an upfront advance payment under LCs upto 20% of the invoice amount;
covering a shipment period of four months and once the machineries/Civil works have been
imported it takes around eight months for installation. Furthermore, a standard grace period of one
year has been granted over principal payments to provide breather during initial phase of the
project.

Justification for ILC (S):

An enhancement of PKR 900.00 M in existing ILC has been proposed keeping in view the availability
of local scrap at concessionary price. Scrap prices in international markets are increasing because of
the current situation between Ukraine & Russia. Currently scrap locally is available at cheaper rate in
comparison to imported scrap. In order to take advantage of this difference in Price Company is
planning to procure scrap locally till it is available at reduced rates.

Local procurement of scrap during the period Jul-21 to Feb-22 has been 3,180 MT. The company is
currently planning to procure 15,000 MT to 20,000 MT scrap locally during the month of Mar-22 and
will be procuring scrap locally in future months if it is available at reduced rates.

Product- Aluminum
Aluminum is the second most abundant metallic element in the Earth's crust after silicon, yet it is a
comparatively new industrial metal that has been produced in commercial quantities for just over
100 years.
Aluminum Ingots - Its Application
Type Application
6061/6063 Ideal for Structural Applications & Constructions Projects
(Aluminum Bar, Aluminum Sheet & Plate)
ADC 12 Automotive/Motorbike Parts
(Car/Bike Cylinder Head,
Car/Bike Cylinder Block,
Auto Gear Boxes and Sensor etc)
3000/3003 Sheets/Foils (Fuel Tanks, Sheets, & Flat Metal Works)
Global Production:
World primary aluminum production totaled over 65.0 million tons in 2020. China was the world's
largest producer with 37 million tons, followed by Russia, India and Canada.

Aluminum Global Uses:

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The automotive and transportation industry relies on a variety of aluminum alloys in the
manufacture of various components, because of its lightness and durability, which reduces a
vehicle’s weight and, in turn, fuel consumption and greenhouse gas emissions.
Aluminum is also widely used in Construction, electrical and electronics industries and Packaging.

Aluminum Demand by Region:

Global demand for primary aluminum reached an estimated 64.0 million tons in 2020, representing
less than a 2.1% decrease compared with the 2019 quantity of 65.4 million tons. World aluminum
demand grew at an average annual rate of 2.4% between 2015 and 2020, largely supported by
increased demand in China and key sectors such as construction and transportation. China
accounted for the largest share of global aluminum consumption by region in 2020, followed by
Europe, Asia, North America and Latin America.

Global Aluminum Consumption Projection:

The world’s path to a net-zero carbon emissions economy means, “The supply growth of primary
aluminum is on bulls run for the next decade. Overall global aluminum demand is poised to rise
“driven by energy transition-related sectors such as transportation and renewable energy from
China, the United States and Europe.” A hint of that transition is already apparent in the growth in
electric vehicle (EV) sales in Europe and China.

China is by far the world’s largest producer of primary aluminum, but its total capacity is “likely to hit
its ‘cap’ during the country’s 14th Five Year Plan [2021-2025], and primary production could plateau
in the longer term,” China has limited its primary aluminum manufacturing capacity due to
environmental reasons. This will allow other countries to take a share in making aluminum products.
From Jan-July 2021, China imported 1.5 Million Tons of Aluminum, an increase of 52% YoY. A player
in another of the world’s largest primary aluminum-producing nations, Russia, has announced an
initiative to bolster its low-carbon aluminum output.

In Europe and North America, aluminum producers including Alcoa, Hydro and Novelis all have taken
steps to introduce low-carbon aluminum, considering the world’s environmental and economic
growth targets, growth ahead in the secondary aluminum and aluminum scrap markets. The two
trends would presumably imply a steady increase of secondary aluminum production, as it
contributes to aluminum supply. The base case assumption is that secondary production will need to
grow by a compound annual growth rate of 10% percent in the next ten years, faster than primary
aluminum.

Proposed Limits:

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PKR in Millions

Sr. No Facilities Limits Purpose

620.00 To fund project cost in relation to establishment of full
scale aluminium plant.
Disbursement under Foreign LC for procurement of Plant
and Machinery upto Pkr 490.00 M (max).
Local Procurement upto Rs. 250.00 M through LC/
Purchase Orders for civil works i.e. (Building/Pre- fab
1 TF
sheds/ Utilities/ Foundations/ Electrical/ Mechanical/
Office equipment etc), shall be disbursed on drawdown
notices from client in bullet / tranches. While amount
under other ancillary machineries/parts if procured locally
shall be disbursed on provision of evidence (i.e invoices
etc certified by CFO).
(490.00) To facilitate the import of plant and machinery of the
1.1 LC-F
project approx. USD 2.80 M
(200.00) To facilitate the procurement of civil works related to
1.2 ILC project i,e Building/Pre- fab sheds/ Utilities/ Foundations/
Electrical/ Mechanical/ Office equipment etc.
Total 620.00

RELATIONSHIP STRATEGY:
RATIONAL OF LONG TERM FINANICNG FACILITIES:
As mentioned above, to cater the growing demand for copper on the wake of shift from combustion
engine to EV, the company has taken an initiative of setting up 18,700 MT per annum aluminum
recycling plant within the perimeters of its existing Dhabeji factory. The total cost of the project is
PKR 890.00 million with 70:30 debts to equity ratio.

Since the machineries are to be installed in Amreli’s existing perimeter therefore, equity is considerd
in the form partially financing the cost of project i.e upto the level of PKR 270.00 Million. The horizon
for the repayment is post availability period i.e. approx. 1 year. The term loan will be utilized to
retire the documents pertaining to imported/locally procured plant and machinery/other equipment
for aluminum plant & Civil Works

LC (Foreign/ Local):
LC Sight- Foreign/Local line amounting to PKR 490.00 Million as a sub-limit of main TF line has been
proposed to facilitate the import of plant and machinery; essential to run the aluminum plant. LC’s
established for procurement will cover the shipment time of upto 05 months with 20% advance
payment.

Furthermore, ILC-Sight line; amounting to PKR 200.00 Million has been proposed as a sub-limit of
main TF line to cater the procurement of civil works I,e Building/Pre- fab sheds/ Utilities/
Foundations/ Electrical/ Mechanical/ Office equipment.

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FINANCIAL ANALYSIS- Dec 2021

The company registered net sales of PKR 26.6 billion during the first half of ongoing financial year
showing a growth of 52.5% in the top line as compared to the corresponding period last year. The
gross profit for the half year increased from 1.9 billion (10.8%) to 3.4 billion (12.7%) due to better
price retention and increase in operational efficiencies. The operating profit registered an impressive
growth of 102% to PKR 2.4 billion as compared to PKR 1.2 billion in the similar period last year. The
company registered PBT of PKR 1.55 billion and PAT of PKR 1.3 billion as compared to profit before
tax of PKR 353 million and a profit after tax of PKR 423 million in the corresponding period last year.
According to the latest economic update and outlook from the finance division of government of
Pakistan, the overall LSM posted a growth of 3.3% during the period of Jul-Nov FY-2022. The iron
and steel sector posted a strong growth of 25.3% with an array of construction activities being
witnessed in the said period.

Other than that as per the latest publication from state bank of Pakistan, the banks ‘outstanding
credit for housing and construction increased by PKR 163 Billion from PKR 192 billion during the
calendar year 2021, recording an exceptional growth of 85%. Within the housing construction
portfolio, disbursement under Government markup Subsidy scheme (Mera Pakistan Mera Ghar)
increased by PKR 38 billion. The state bank of Pakistan has also taken a number of steps to create an
enabling regulatory environment for the banks to increase the flow of financing to the housing
sector which augers well for the construction and steel industry in Pakistan. Owing to which the steel
sector is expected to maintain an upward trajectory in the foreseeable future.

FINANCIAL ANALYSIS
Income Statement Analysis June 2021:
ASTL ASIL MISIL Industry
2019 2020 2021 2021 2021 Average
Turnover 28,595.98 26,532.14 39,218.45 19,858.24 44,971.84 34,682.84
COGS 25,519.05 23,742.40 34,180.23 15,028.84 38,280.47 29,163.18
Gross Loss/Profit 3,076.93 2,789.75 5,038.22 4,829.40 6,691.37 5,519.66
Other Income 7.096 8.167 45.724 239.39 66.82 117.31
Finance cost 1,262.30 2,299.27 1,649.48 1,408.98 1,370.29 1,476.25
Net Profit/Loss
32.823 (1,126.62) 1,368.26 2,036.00 3,429.15 2,277.80
after tax
EBIT 1,195.14 518.81 3,033.44 3,962.37 5,531.78 4,175.86
Gross Margin 10.80% 10.50% 12.85% 24.32% 14.88% 17.35%
Interest Coverage
0.9 0.2 1.8 2.8 4.04 2.88
ratio (Times)
Net Profit Margin 0.11% (4.25%) 3.49% 10.25% 7.63% 7.12%
Sales revenue surged by 48% and clocked in at PKR 39,218.45 Million, revenue growth represents
both increases in sales quantities and price, which is supported by increased demand for
construction materials. The sale quantities have grown at a CAGR of 19.32%. The Company is
continuously increasing its footprints across the country and has been able to increase its sales in the
northern region from 20% in FY 16 to 33% in FY 21. During FY 21, the existence of strong demand
post COVID-19 lockdown and announcement of construction package by the government has helped
the Company to increase its sales volume by 33% and overall sale revenue by 48% as compared to FY
20.

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The company recorded a year-on-year increase in the cost of sales from being at PKR 24,718.95
Million in FY’20 to PKR 34,676.315 Million in FY’21, which is in line with the increase in sales
revenue. However, the cost of sales has drastically increased in FY 20 due to rupee devaluation and
withdrawal of Industrial Support Package Adjustment on electricity and retrospective charge of Fuel
Charge Adjustment by K-Electric and loss of contribution margin during two months lockdown due to
COVID-19 pandemic. During FY 21, the increase in cost is due to a significant increase in international
scrap prices which skyrocketed from USD 282 per ton in July 2020 to USD 516 per ton in June 2021.
The price increase is due to the resumption of global economic activities, especially construction
resulting in demand-supply gap and an increase in freight charges due to port congestions. Further,
Fuel Charges Adjustment and increase in electricity tariff by K-Electric contributed to increase in
cost.

Administrative and distribution cost collectively reported an increase of 25% on YoY basis, however
in terms of percentage of sales it has improved from 4.46% in FY 20 to 3.82% in FY 21. This increase
in absolute terms represents the inflationary increase in cost over the period, increase in the
company’s operational cost due to increase in production capacities including a significant increase
in the number of employee’s to support its extended operations. Distribution cost increased in line
with the increase in sales revenue of the Company and mainly attributable to increase in the
advertisement, sales and promotion, which were curtailed in FY 20 due to the lower profitability of
the Company. Further, cartage & transport and bundling &special-order charges have increased due
to increase in quantities sold.

Finance cost consists of mark-up paid on short-term and long-term borrowings and other financial.
In FY 20, the finance cost remained on the higher side because of loss incurred due to depressed
economic conditions, COVID-19 lockdown and double-digit interest rate. However, in FY 21 the
finance cost was reduced due to a decrease in the policy rate by State Bank Pakistan from 13% to 7%
to uplift the economy contracted by COVID-19 lockdown.

The Company posted net profit of PKR 1,368.25 Million in FY’21, emerged from losses of PKR (1,129
M) reported in FY20 depicting a strong recovery in terms of portability. The Company’s performance
reflects the overall growth in the economy, pent up demand due to lockdown in FY 20, a stable
policy rate and construction package as stimulus for growth. Further, the introduction of various
housing schemes under the State Bank of Pakistan refinance scheme to fund the construction of low-
cost houses at substantially subsidized markup rates. The demand of steel in the country has picked
up pace and the Company was well positioned to avail the opportunity offered and increased its sale
volume and market share. Resultantly, the Company was able to achieve a 33% year-on-year
increase in quantity sold. On the other side, the global supply chain and international steel scrap
prices remained a big challenge for the steel sector, due to which the average price per ton
increased by 60% during FY 21 the impact of which has been translated into re-bar prices to
maintain the margins.

Amreli Steel’s margins witnessed notable surge (Gross: FY21: 12.8% FY20: 8.6%), NPM: FY21: 3.5%
FY20: -4.7%). However, there is an upward trend witnessed in international scrap prices along with

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energy cost contributed to the higher cost of sales, but effective cost management along with higher
sales volumes contributed towards better margins.
ASTL ASIL MISIL Industry
2019 2020 2021 2021 2021 Average
Current
12,460.21 17,571.52 15,933.59 17,781.65 25,940.78 20,355.74
Assets
Current
14,474.71 18,015.09 16,488.54 13,888.86 18,889.96 16,422.45
Liabilities
Equity 12,243.59 11,113.19 13,940.63 13,810.78 16,504.86 14,752.09
leverage 1.42 2.19 1.61 1.56 1.53 1.57
Current
0.86 0.98 0.97 1.28 1.37 1.21
Ratio
Debt (LT)
to Equity 0.24 0.38 0.32 0.43 0.39 0.38
Ratio
ROE 0.27% -10.14% 9.81% 15.00% 20.78% 15.20%

During the year under review the current assets reported by the company clocked in at PKR
17,344.79 million as compared to PKR 17,571.52 million SPLY portraying a decrease of 8% on YoY
basis. The decline is mainly a factor of decrease in goods in transit and other receivables reported by
the company. On the other hand trade debt surged from PKR 4,900.33 Million in FY’20 to PKR
6,320.34 million in FY 21, which is in line with the increase in sales revenue of the Company.

Talking about the debt leg of the company, total liabilities of the company reported a decline of 8.4%
on YoY basis and reported at PKR 16,488.541 million. The decrease is mainly attributable to 20%
decline in short term borrowing and interest expense of the company. The decline in short term
loans is mainly due to reduction in cash finance facility utilized by the client. However, a YoY increase
has been witnessed in trade debts of the company which mainly includes financing from Islamic
banks i.e. Murabaha for purchase of raw material and short term working capital line which includes
running finance and FATR. The increase in short-term borrowing by way of conventional and Islamic
lines reflects the increased working capital requirement due to an increase in capacity utilization and
rupee devaluation over the period.

Long term liabilities on the other hand reported a negligible decline of 5.41% on YoY basis mainly
due reduction in non-current portion of government grants. In FY 20, the long-term loans increased
to finance permanent working capital. In the year under consideration, the increase in long-term
loans is attributable to financing of solar power project and availing of salary refinance and
temporary economic refinance facility announced by the State Bank of Pakistan. In FY 21, the
shareholder equity increased by 27.3% and clocked in at PKR 13,940.360 billion due to an increase in
profit and surplus on revaluation of fixed assets when compared to the position of FY 20.

The liquidity ratios are directly attributable to the internal cash generation of the Company. The
decline in margins from FY’19-20 has resulted in the current ratio to 0.97 times in FY 21. During last
year, the Company raised a syndicated term loan of PKR 4 billion to swap with short-term loans with
an intention to improve the current ratio to 0.96 times from 0.86 times in FY 20. In FY 21, the current

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ratio slightly inched up to 0.97 due to generation of profit but remained below par due to current
maturities of long-term loans falling due in FY 22.

The inventory days remained between 93 to 64 days from FY 19 to FY 21, respectively. Due to the
installation of a new rolling mill and the expansion of melt shop in FY 18, the Company stockpiled the
raw material, which resulted in higher inventory days in FY 18, In FY 19, the Company sold more than
they produced, this resulted in an improvement in inventory days by 58 days to 93 days in FY 19. In
FY 20, inventory days increased to 118 days mainly due to COVID-19 lockdown in the fourth quarter,
nil consumption and buildup of raw material inventory during such period. In FY 21, the Company
maintained just-in-time inventory to ease off the cash flow resulting in inventory days decreasing by
54 days to 64 days. The creditor’s days remained in line with the trend. The debtor days are
calculated based on average debtors and net sales. The Company’s debtor’s days range between 43
days to 59 days from FY 19 to FY 21. The Company is committed to reduce its debtor’s days and has
established a dedicated sales and credit administration department to administer and monitor
receivables from customers. However, due to exceptionally low demand and COVID-19 lockdowns
which halted sales, production and collection, FY 20 remained a challenging year for the Company
and the debtor’s day increased to 67 days in FY 20 when compared to 43 days in FY 19. With
improvement in sales and collection in FY 21, the debtor days accordingly reduced to 59 days.

Amreli Steel has a much leveraged balance sheet, with a total debt to equity ratio of 0.32 having a
total debt of PKR 22.42 billion during the year under review. The leverage position has improved on
YoY basis on the back of improved profits after the reported losses in the last few periods.
Nevertheless, the same is in proportion with the industry average of 0.38x

FINANCIAL PROJECTIONS (Annexure-B Attached):

Balance Sheet

DESCRIPTION
FY23 FY24 FY25 FY26 FY27
EQUITY
Total Equity 18,494,470,324 19,465,182,169 22,972,853,223 28,005,630,091 33,587,230,498

NON - CURRENT
LIABILITIES
Long term loan 3,549,629,773 1,693,443,616 823,459,322 627,806,836 432,154,350
4,572,842,089 2,911,680,913 2,417,641,570 2,757,461,251 3,253,368,907

CURRENT LIABILITIES
Current maturity-long
1,975,906,787 1,856,186,157 869,984,294 195,652,486 195,652,486
term loan
Current maturity of
22,853,997 22,853,997 - - -
finance lease-ROU
Current portion of
12,494,350.00
government grant
Short term finance 22,675,533,828 20,962,257,292 23,208,904,094 17,562,199,330 11,579,300,600

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29,421,038,235 27,899,514,589 28,782,123,954 24,152,070,180 18,646,107,691

Total Equity & Liabilities 52,488,350,647 50,276,377,671 54,172,618,746 54,915,161,522 55,486,707,096
NON - CURRENT ASSETS
22,178,469,457 21,406,361,639 20,667,345,069 19,973,174,592 19,315,872,789

CURRENT ASSETS
30,309,881,190 28,870,016,032 33,505,273,678 34,941,986,930 36,170,834,307
Current Ratio 1.03 1.03 1.16 1.45 1.94
Total Assets 52,488,350,647 50,276,377,671 54,172,618,746 54,915,161,522 55,486,707,096

FY23 FY24 FY25 FY26 FY27

Turnover - net 77,123,687,460 76,685,937,975 93,520,886,705 102,743,762,493 108,843,115,058

Cost of sales 68,053,961,045 68,124,858,406 81,595,913,330 89,590,363,342 94,875,250,169

Gross profit 9,069,726,415 8,561,079,569 11,924,973,374 13,153,399,151 13,967,864,889

Distribution costs 1,307,158,680 1,493,560,386 1,970,678,289 2,238,273,806 2,438,824,073
Administrative costs 752,751,740 804,505,402 880,712,484 943,771,120 1,020,864,956
2,059,910,421 2,298,065,788 2,851,390,774 3,182,044,926 3,459,689,028
Allowance for ECL 229,463,322 212,882,253 251,686,175 277,282,816 293,402,816
Other operating income 22,552,545 99,344,132 110,975,099 114,881,943 122,476,588
Operating profit 6,802,905,217 6,149,475,660 8,932,871,524 9,808,953,352 10,337,249,633
Finance costs 3,781,692,740 3,560,344,845 3,180,110,987 2,553,780,476 1,782,596,765
Other Charges 224,580,607 181,933,005 376,935,999 469,715,478 548,541,981
4,006,273,347 3,742,277,850 3,557,046,986 3,023,495,954 2,331,138,746
Profit before taxation 2,796,631,870 2,407,197,810 5,375,824,539 6,785,457,398 8,006,110,887
Profit before taxation-
After Excluding profit
2,796,631,870 2,025,913,611 4,765,956,858 5,986,083,281 7,185,133,615
generate from
Aluminum plant
Taxation 307,742,791 1,139,474,538 1,868,153,484 1,752,680,530 1,978,993,339

Profit after taxation 2,488,889,079 1,267,723,272 3,507,671,054 5,032,776,868 6,027,117,548

EBIT- Adjusted 6,578,324,610 5,967,542,655 8,555,935,526 9,339,237,874 9,788,707,651

DSRA- Adjusted 1.14 1.10 2.11 3.40 4.95

EBIT- Adjusted 6,578,324,610 5,586,258,456 7,946,067,845 8,539,863,757 8,967,730,379

DSRA- Adjusted 1.14 1.03 1.96 3.11 4.53

Cash Flow Analysis

DESCRIPTION
FY23 FY24 FY25 FY26 FY27
CASH FLOW FROM
OPERATING ACTIVITIES

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Profit (loss) before

2,796,631,870 2,407,197,810 5,375,824,539 6,785,457,398 8,006,110,887
taxation
Net cash generated/
(used) in operating 3,298,585,603 7,507,221,397 2,812,709,944 8,855,867,323 8,442,530,776
activities

Net cash generated from

(used in ) operating
activities( After Excluding 3,298,585,603 6,196,488,252 2,734,638,331 8,074,935,970 7,661,972,484
Cash generated from
Aluminum project)

CASH FLOWS FROM

INVESTING ACTIVITIES
Net cash generated/used
(980,018,650) (297,011,427) - - (445,517,141)
in investing activities

CASH FLOWS FROM

FINANCING ACTIVITIES

Net cash generated/used

(4,686,194,464) (5,541,933,434) (5,059,356,747) (3,209,162,559) (2,014,114,905)
from financing activities

Net increase/decrease in
(2,367,627,512) 1,668,276,536 (2,246,646,803) 5,646,704,764 5,982,898,731
cash and cash equivalents

Cash and cash equivalents

at the beginning of the (20,207,906,316) (22,575,533,828) (20,907,257,292) (23,153,904,094) (17,507,199,330)
year

Cash and cash

equivalents at the end of (22,575,533,828) (20,907,257,292) (23,153,904,094) (17,507,199,330) (11,524,300,600)
the year
CASH AND CASH
EQUIVALENTS

Short term finance (22,675,533,828) (20,962,257,292) (23,208,904,094) (17,562,199,330) (11,579,300,600)

Cash and Bank balances 100,000,000 55,000,000 55,000,000 55,000,000 55,000,000

Cash and cash

(22,575,533,828) (20,907,257,292) (23,153,904,094) (17,507,199,330) (11,524,300,600)
equivalents for the year
Based on the projected numbers provided by the client; post expansion estimate showed an
increase in topline of the company at a CAGR of 7.13% in the coming years (FY23-FY27), out of which
7.67% comprises of revenue generated from export of aluminum Ingots.

The bottom-line of the company increased at a CAGR of 23.41% out of which; 18.62% pertains to
sale of aluminum ingots. The projected inventory levels reported a CAGR of 5.63% (FY23 –FY27)
mainly to facilitate increasing volume of sales. Stating further, the fixed assets of the company also
increased by 889.93 M; owing to installation of new machinery pertaining to non-ferrous project.
The projected debt position of the company reported an increase of PKR 622.95 Million reflecting
the debt lag of the project to fund the expansion project. Equity base of the company increased at a
CAGR of 12.67% on the back of increased retained earnings.

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The margins and coverage ratios of the company showed a gradual improvement as depicted in the
financial projections attached. Since a 100% export commodity; company foresee to hedge the raw
material cost for steel products thereby increasing margins.

Currently, among all other peers; only Mughal Iron and Steel has initiated the export of copper
ingots to china and received an over-whelming response. Mughal iron supplied its first consignment
of around 50 tons worth of copper ingots to China in FY19. Sooner the company reaped prime
customers on board and the supplies multiplied to 500 tons in 1QFY21. Such kind of response keeps
ASTL well positioned for its non-ferrous project.

Cash Flow Analysis:

Based on the financial Model of the company, which presents the base case scenario, the cash
generated from operating activities reported an increase of PKR 5,143.94 M in absolute terms and
CAGR of 21% (FY23 to FY27),on the basis of which the company appears to be having sufficient cash
flows to meet all its fixed debt obligations. To gauge the sensitivity of the analysis, key drivers have
been stress tested where cash generated from the non-ferrous plant has been eroded; keeping debt
acquired for funding the project remained unchanged. Based on such scenario, the company is still
showing to maintain a sufficient cash flow from operating activities amount to PKR 4,009 M against
the current maturities of PKR 2,011 M in FY23. Likewise, the same trend has been maintained for
rest of the projected years. Talking about impact on liquidity profile of the company; Current Ratio,
remained 1:1 throughout the projected timeline. While its capacity to repay expressed in the form
of “DSCR” also shows ample room by consistently staying beyond 1.03 times. This again is based on
the assumption that if company fails to generate profit from its aluminum plant whereas, the debt
remains intact. Overall, the sensitivity analysis allows to draws reasonable comfort in terms of the
company being able to meet its debt obligations.
MANAGEMENT ASSESSMENT:
Outside Corporate/ Years in
Name Title Responsibilities
Family Affiliation Industry
Mr. Abbas Chairman & Focus on vision, mission and Family Affiliations 43 years
Akber Ali Non-Executive strategy as well as development
Director and modernization of ASL’s
infrastructure.
Mr. Shayan Chief Executive Management of Existing plant, Family Affiliations 16 years
Akberali Officer meeting the production targets
and timely dispatch of goods.
Mr.Fazal Chief Operating Financial Planning & Management Outside Family 18 years
Ahmed Officer & CFO
Mr. Hadi Chief Operating Director Projects and strategic Family Affiliations 08 years
Akber Ali Officer planning
(Strategy)

INDUSTRY OVERVIEW
Overview:

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Steel products are generally classified into 4 broad categories: Long steel products, flat steel
products, semi-finished products and tubes. The long products include re-enforcing bars, structural
sections, wire rods and forgings. Flat products include Hot Rolled Coil (HRC), Cold Rolled Coil (CRC),
Hot Dipped Galvanized Coil (HDGC) and Color Coated Coils. Pipes include seamless pipes and welded
pipes. The products which are classified as semi-finished or unfinished are generally not sold to end-
consumers and are instead further processed into finished products.

Global Overview:
World GDP and Steel Industry have a direct correlation. Average growth rate of the Industry from
CY15-CY19 was recorded around 3%. Owing to COVID-19, global steel output contracted by almost
4% in 1HCY20, but the production rebounded fairly in 2HCY20. Resultantly, global steel production
recorded a growth of 0.2% in CY20. As global vaccination drive continues to contain the outspread
of the virus and normalize economic activity, world steel output is expected to register healthy
growths of 6% and 5% in CY21 and CY22 respectively.

Global Production & Consumption:

Decrease in global steel consumption in CY20 was led by slowdown in China and significant
consumption decrease in Europe and North America. China, world’s largest steel consumer,
registered a consumption growth of 4.5 in CY20 (CY19: 9.0%). Consumption in Europe decreased by
18% in CY20 (CY19: -3%). Manufacturing accounts for 60% of total steel consumption, this demand
driver has been in recession since 2019, and the pandemic further reinforced this trend. The US
accounts for 75% of steel consumption in North America. According to American Iron and Steel
Institute (ASII), in 2018 43% of steel was consumed by construction sector, 27% by automotive
sector and 10% in fuel and power complex. Slumping energy prices in CY20 have affected direct
investments and related construction business. Automotive plant remained close for 6 weeks during
CY20.

World Steel Production has a stark outlay. It is clearly China and Rest of the World (ROW). China
accounted for 57% of global production in CY20 (CY19: 53%). ROW is fragmented in many countries.
The second largest producer, India, constituted 6% of total production in CY20 (CY19: 5%). China is
also the largest consumer of steel products as the country made up 56% of total world consumption
in CY20 up from 51% in CY19.

Large Scale Manufacturing (LSM) | Overview:

The Large Scale Manufacturing (LSM) is a significant component of the Manufacturing Segment of
the Industrial sector. It is considered essential for the country’s economic growth considering its
strategic importance and linkages with other sectors of the economy. It contributes 9.5% to the GDP.
The Steel Sector, bearing notable weightage in LSM, holds a share of 5.4% in its composition. In
FY21, the country’s GDP registered a V-shape growth recovery of 3.9% after witnessing a contraction
of 0.4% in FY20. This was attributed to a steady pickup in economic activities post COVID-19
lockdown in 4QFY20. The growth rate surpassed the targeted growth of 2.1 percent, for the
outgoing fiscal year. The Government of Pakistan (GoP) and SBP announced series of incentives
during 4QFY20 to support businesses and to stimulate business activity. The stimulus measures
yielded positive results for the economy as the LSM posted a growth of14.9% during FY21 (FY20: -
9.8%). The GoP has set an economic growth target of 4.8% for FY22.

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Local Steel Industry:

Pakistan Steel Sector is largely fragmented with over 170 players registered with The Pakistan Steel
Re-Rolling Mills Association. Key players in the Industry are, however, less than 20 in number, yet
account for over 40-50% production capacity of the sector. Out of these, 12 players are listed on the
PSX. Pakistan steel sector is majorly driven by private corporates. Pakistan Steel Mills (PSM) – a state
owned giant with a capacity of 1.1mln tons has been offline since June 2015.The country’s annual
steel products’ demand hovers around 11mln tons (FY21). Steel products are broadly classified into
long & flat products and tubes & pipes. Almost 73% of the country’s demand is met through local
production, while the remaining portion is imported. The major raw materials used in steel industry
are steel scrap. Pakistan is an importer of raw iron and steel scrap, although, the country produces
Iron ore (less than a million ton in a year). On the other hand, Pakistan also imports finished steel
products (as stated above) to fulfill the country’s demand.

Major Steel Products:

Long Steel Products: The term long steel refers to the products made from billets and blooms, which
are mainly used in the construction sector. Usually, they are made through EAF furnaces. Long steel
products include rebar, wire rod, merchant bars, rails and sections.
Flat Steel Products: Flat steel products consist of sheets and plates. They are rolled from slabs,
which are a semi-finished steel product. These products are used in a wide range of industries such
as automobile, domestic appliances, and construction.
Tubes & Pipes: Steel tubes & pipes are most commonly used to transport products such as oil, gas,
and water, and are suitable for long-term installations. The demand is driven by large engineering
projects.
Production:
Production of billets were recorded at 4.8mln tons during FY21 with YoY growth of 51% (FY20:
3.16mln tons). The significant increase in construction activity across the country led to the increase
in demand of flat steel products. However, a lower demand from H/C.R Sheets (Flat products) was
continued in FY21, mainly driven by drop in electronics production. Among billets manufacturers
Amreli Steel, Mughal Iron & Steel and Agha Steel are major listed companies. This segment of the
industry is highly fragmented with scores of small players.

Production Capacity:
Top listed players in long steel segment are Amreli Steel, Mughal Steel and Agha Steel.

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Capacity Utilization:
Capacity utilization decreased during FY20 owing to overall slow-down in economic activity.
However, with an uptick in construction activity, capacity utilization of companies is expected to rise.

Raw Material:
Pakistan is an importer of steel raw materials, i.e., majorly steel scrap, although a small share of iron
ore is locally procured too. Most of the raw materials used in steel production are imported from
China. During FY21, total iron and steel scrap imported was recorded around USD 1.9bln (USD 1.5bln
in FY20), a share of 3.4% to the country’s total imports. Total quantity of iron and steel scrap
imported was recorded around 4.7mln tons up 21% YoY (FY20: 3.9mln tons). High dependence on
imported raw material exposes the sector to changes in international raw material prices and
exchange rate fluctuations. During FY21, the country produced 725k tons of iron ore, a nominal
contribution to the sector’s requirement. Along with raw materials, Pakistan is also a partial
importer of finished steel products.

Prices:
Global prices of steel raw materials observed significant increase starting from Sep-2020 to July-2021
amid increased construction activity and tightened supplies. Iron ore prices reduced significantly
during August-2021 from above US$200/ton to a low of US$133/ton during second week of August-
2021 owing to China’s slowing steel output on environmental cuts and weakening demand from the
property and infrastructure sectors and improved global supply of Iron ore. Manufacturers of long
products are major importer of scrap steel. Amid high demand, the local player’s ability to pass on
impact of increased to customer is increased and thus margins of companies are expected to remain
robust. Flat steel producing companies’ imports hot rolled coil (HRC) as the major raw material for
their final product are cold rolled coils (CRC). Global prices of iron ore as well as steel rebars are
expected to remain under pressure during CY21 amid no signs of significant increase in China’s
construction activity. The reduction in iron ore price would be positive for Pakistan's steel companies
considering their high dependence on imported raw material.

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Demand Overview:
Pakistan’s total Steel Products’ consumption was recorded at 11.0mln tons in FY21 (9.3mln tons in
FY20) up 19% YoY basis. The increase was majorly witnessed in Billets/ingots local production from
which long steel products are produced that is used in the construction sector. Meanwhile, a decline
was witnessed in the production of HRC/CRC Sheets/Strips Segment due to muted demand from the
electronics segments.

Majority of the construction revenue is from government contracts ranging from building of
Infrastructure to Highways, Offices and Airports. The budgeted size of PSDP allocation for FY22 is
PKR 1,864bn (FY21: PKR 1,325bn) up 41% on YOY basis. The COVID-19 pandemic has made the
demand for public investment essential in order to trigger job creation, support the economic
activity and alleviate increased poverty. With significantly increased allocation coupled with other
initiatives, the outcome looks encouraging. PSDP expenditure is highly correlated to construction
sector’s activity. Construction package announced by the government in FY20 including PKR 36bln
subsidy for low-cost housing finance have already started to yield positive results as total housing
and construction financing reached an all-time high of PKR 259bn in June-2021 (June-2020: PKR
158bn) with YoY growth of 64%. Moreover, commercial banks were directed by SBP to increase
construction sector loans to 5% of their total loan book. Advances are expected to maintain upward

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trajectory as government has further relaxed the requirements to obtain house construction loan at
subsidized rates.

Outlook:
Post COVID-19 lockdown, steel sector has shown tremendous growth mainly led by the significant
increase in demand for long products. During FY21, the government has announced construction
package along with other regulatory relaxations to support construction activity. These measures are
yielding positive results as the sector has shown healthy growth signs since then. The government
has also increased the size of budgeted PSDP allocation for FY22 to PKR 1,864bn (FY21: PKR 1,325bn)
up 41% on YoY basis. Total spending of PSDP allocation by the government is highly likely, subject to
availability of funds. Moreover, the growth of financing under Naya Pakistan Housing schemes is also
encouraging and is expected to enhance further in the coming periods. Improved demand prospects
have strengthened the pricing power of the sector players. On the other hand, steel scrap prices
have recently witnessed a decline in the International market, yet local product prices continue to
improve. This will expand the margins room of the players more. Additionally, the sectors bottom-
line has benefitted from historically low interest rates. Any increase in the Interest rates in the near
term will add to the finance cost of the players and thus impact bottom-line margins. Recent decline
in international scrap steel prices has largely nullified the pressure of currency depreciation impact.
Raw material prices are expected to remain range bound in FY22 which will bode well for the
sector’s overall profitability. Any unforeseen demand dip from individual housing construction or
from major engineering projects may cast a downward impact on the sector’s profitability.
CRITICAL SUCCESS FACTORS:
 Project will be 100% owned by Amreli Steel and will be on the books of Amreli Steel
 Strong Sponsor/financial support from Amreli Steels
 First mover advantage
 Synergy with existing setup
 No large and organized players available in Pakistan

KEY RISK FACTORS

 Low Entry Barriers from other industry players
 Global scrap – ingot margins
 Increase in cost of doing business
THIRD PARTY INFORMATION:
The eCIB report of ASTL dated 25 March 2022 is clean, with no rescheduling and restructuring in last
5 years, reflecting funded exposure of Rs. 25,515.286 Million & non-funded exposure of Rs.
6,487.910 Million

EXCEPTIONS & WAIVER:

Waiver of Insurance on Askari Bank's hypo charge as per the practice in the steel industry keeping in
view the nature of the product of the company (Approval requested in continuation).
Considering, insurance is particularly obtained to protect against fire, the same is not required for
steel industry, as the raw material itself is burnt in melt shop for production of billets/rebars.

- Freight Forwarder/House Bill of Lading- Freight Forwarder / House / Charter Party Air Way/ Bill of
Lading to be accepted for the import and waiver for obtaining undertaking 'All discrepancies

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acceptable' prior to receipt of documents. The subject approval (in continuation) is requested in line
with the practice of other corporate customers where the undertaking is not provided prior to receipt
of documents, as this defeats the purpose of UCP/LC- wherein payment is only subject to compliance
of terms of LC. Moreover, the acceptability for charter party BL is owing to the nature of raw
material, which is also supplied on ‘Bulk’ basis. Furthermore, ASL provides marine insurance that
endorses acceptance of charter party BL. Hence Bank interest is secured wrt insurance coverage. On
the other hand freight forwarder/House BL is particularly for spare parts LC, which is transported via
air shipment. Therefore, acceptability of such BL is imperative, to allow import of small
machinery/spare parts through airway bill.
COLLATERAL / SECURITY ANALYSIS
The existing security structure is adequately secured by way of First Pari Passu Hypothecation
Charge over all present and future fixed assets of the company, i.e. and mortgage charge on
following immovable properties, with 25% margin on facility amount, i.e. total charge of Rs 831 mln
to be registered.
Immovable Properties:
1. Deh Gharo, Mirpur Sakro, Distt Thatta, Dhabeji (Land 32 Acres in Deh Gharo):
2. D-89, Shershah Road, SITE, Karachi:
3. A-18, SITE, Karachi for securing the facilities being offered to ASTL.
ASSESSMENT OF ENVIRONMENTAL IMPACT:
The Company is committed to developing, promoting and achieving the highest standard of HSE
operations and it:

 Responds positively to environmental developments by reviewing such issues with the

relevant authorities, local communities and others.
 Works effectively to encourage environment awareness and identify and share best
practices and new techniques to reduce environmental impact.
 Minimizes emissions and waste by evaluating operations and ensuring they are as efficient
as possible.
 Reduces and where practical, eliminates hazardous and nuisance release to air, water and
land.
 Inculcates sense of responsibility towards the environment among our employees.
 Periodically reviews the suitability, adequacy and effectiveness of the HSE management
system.
 Educates, trains, encourages and motivates employees to carry out activities in a responsible
manner in accordance with the requirements of generally accepted OHS & Environmental
management system. Applies technologies that are not harmful to our employees’ health
and are environment friendly.
 Sets objectives and targets, key performance indicators and program for occupational health
and safety.
 Strives to prevent any accident and to achieve continual improvement of the HSE
management system and related performance.
 Consults with employees on matters affecting their health and safety.

Conclusion/Recommendation

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Based on the facts stated above and the terms and conditions highlighted, an approval is being
sought to fund the project cost amounting to PKR 620 Million along with enhancement in existing ILC
line by PKR 900.00 M.

It is worthy to notify that; historically total exposure of funded and Non-funded lines have had
reached upto the level of PKR 3,000.00 Million. Till date the conduct of account has been satisfactory
with sizeable reciprocation of business and timely settlement of liabilities with no major instances of
overdues in account.

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