DOST STEEL LIMITED-INITIAL PUBLIC OFFERING

Introduction

MARIAM NASIR
Manager Research
Oct 29 - Nov 04, 2007

Dost Steels Ltd. is the first state of the art automatic steel re-rolling mill in Pakistan on turnkey basis from Siemens Germany. The Dost brand has a distinguished standing of 25 years in textile spinning and gelatine industries. The project is based at Bhai Pheru near Lahore and spread over 40 acres of land. It has a capacity to produce 350,000 tons of high strength deformed steel, making it the biggest re-rolling mill of Pakistan. Its initial public offering was scheduled on 22nd and 23rd of October 2007.

The company will fulfill the country's steel demand and will make import substitution for deformed steel bars in the country. It will replace the cold rolled / twisted TOR steel in the country by offering a world standard hot rolled deformed steel. It is also introducing a world class product on a large scale through out the country. Dost Steels is the first mill in Pakistan to make 100% of its production in hot rolled deformed steel bars. It will be using prime billets for the production of steel bars. No scrap/ship plates, inferior quality raw material will be used.

PROJECT COST

The total cost of the project is estimated at Rs.1,650m which has been financed through a debt equity ratio of 59:41. A debt of Rs.775m has been raised through a syndicated term finance facility while another debt of Rs.200m has been raised through Morhab financing facility. Rs.675m equity of the company comprises of sponsors contribution of Rs.400m and IPO of Rs.275m.

PLANT TECHNOLOGY

Dost Steels is a straight line bar mill comprising of 18 rolling stands, automatic rake cooling bed, bundling and binding station with complete automation interconnecting all equipment to a central computer control system. It also incorporates the 3 slit parallel bar production process which maximizes the production efficiency and reduces the production cost for the smaller diameter rebar. Dost Steels are an agent of change in the reinforced bar steel market in Pakistan and thus enhances the prevailing quality levels of steel bars in the local market bringing it at par with the seismic friendly high strength deformed steel bars being used all around the world. The entire project and technology is supported and implemented by Siemens Vai Metal Technologies and ASIAnsaldo Sistemi Industrial spa, who are leaders in steel making and rolling plants and electrical automation and controls all over the world.

ADVANTAGE OF HOT ROLLED STEEL

1. Higher ductility
2. Superior bend ability
3. Higher corrosion resistance
4. Close dimensional tolerance
5. Better heat resistance
6. More economic

AFFILIATES OF DOST STEELS LIMITED

* Dostsons Cotton Mills (Pvt.) Limited is a producer and exporter of open and Autocoro yarn. The company started with a daily production of 20,000 pounds 100% cotton yarn in 1989. The mill is located at Nooriabad on Karachi Hyderabad super highway.

* NTP Gelain (Pvt.) Limited was incorporated in November 1992. The company offers wide range of gelatin for the food and pharmaceutical industries.

FINANCIAL OUTLOOK

With the unmet demand in the steel industry, company sales revenue as per the company projection is to grow and the same is expected in the gross and net margins of the company. The company has not commenced any business activity upto March 2007. However as per the profit and loss account made in accordance with the accounting policy the company registered a loss after tax of Rs.3.96m.

Indicators

FY08F

FY09F

FY10F

FY11F

FY12F

Sales (Rs m)

9,938

13,827

14,691

15,556

16,420

Gross Margins (%)

8.30%

8.50%

8.50%

8.50%

8.50%

Net Margins (%)

2.76%

2.78%

2.93%

2.98%

3.08%

FUTURE OUTLOOK

Demand for steel in the country is estimated at 6.5mtpa of which steel rebar demand is estimated at 4.3mtpa. Construction sector has been the key demand driver for steel rebar which is expected to get a further impetus as international developers, like EMAAR & ENSHA, enter the local markets. All these expectations are to result favorably for the company.