CRESCENT STEEL AND ALLIED PRODUCTS LIMITED

MARIAM NASIR
Manager Research

Nov 12 - 18, 2007

Crescent Steel and Allied Products Limited is a steel pipe manufacturing and coating company. It started commercial production in March 1987. During the last eighteen years, CSAPL has been the industry leader in large diameter pipes. The company is listed on all the Stock Exchanges of Pakistan. The manufacturing facilities consist of a Spiral Pipe Production line and a multi-layer Polyolefin, stand-alone Epoxy Coating and Heat Shrink Tape Coating line, both located side by side at the Sindh Industrial Trading Estate, Nooriabad in Jamshoro district of Sindh, Pakistan. It is the first Pakistani company to have acquired oil and gas industry specifics ISO 9000-2000 Quality Management System certification from API.

In the year 2000, the company acquired a running spinning unit of 14,400 spindles (now 19,680 spindles) at Jaranwala (District Faisalabad) on 30 June 2000 from Crescent Jute Products Limited. Another spinning unit CCP-II was added with 25,344 spindles in 2006. The cotton spinning activity is carried out by the Company under the name and title of "Crescent Cotton Products a division of Crescent Steel and Allied Products Limited". During FY06 Investment and Infrastructure Development Division (IID) was carved separately from Steel Division under the new business Architecture. The division manages an investment portfolio in shares and other securities, across diversified sectors and real estate.

PRODUCTS

Steel Division: Manufacturer of DSAW steel line pipes in diameters ranging from 8 to 90 and applicator of multi-layer polyolefin coating conforming to international standards. Cotton Division: Manufacturer of quality cotton yarn of various counts of 10s to 80s.

FINANCIAL RESULTS- 1Q/FY08

The Company achieved the sales growth of 31% as compared to corresponding period last year, driven by good order intake and execution of own product and conversion jobs contracts in Steel division. Cost on the other hand increased by 26% which resulted in the gross profit to increase by 51% and margins to improve to 20% from 17% at the end of 1Q/FY07. Steel division delivered a robust performance during the quarter achieving sales and gross profit growth of 71% and 99% respectively as compared to the corresponding period of last year. In Cotton division business conditions were difficult due to depressed yarn price and increase in cost of raw cotton. During the period under review, the company generated 5.9% return on average investment (excluding equity accounted undertakings) as compared to -3% in KSE index during the quarter.

Major support to the bottom line emanated from share of profit from associates as it registered humungous growth and reached Rs.176m in 1Q/FY08 as against Rs.6.8m in the matching period last year. In the profit before tax of Rs.362m, an amount of Rs110m on account of share of profit in associated undertakings attributed due to one-off profit from sale of PICIC shares by Shakarganj Mills Limited. Profit for the period ending September increased by 95% to Rs.328m (EPS: Rs.6.39) as against Rs.168m (EPS: Rs.3.28) in 1Q/FY07.

(RS M)

1Q/FY07

1Q/FY08

%

Sales Revenue

683.53

892.13

31%

Cost of Sales

564.35

712.59

26%

Gross Profit

119.18

179.54

51%

Investment Income

112.89

77.39

-31%

Admn, Dist & Opt Cost

39.95

43.72

9%

Finance Cost

31.12

29.25

-6%

Other Income

1.25

2.65

112%

Share of Profit from Ass

6.83

176.01

2478%

Profit Before Tax

169.07

362.63

114%

Taxation

0.88

34.46

3834%

Profit After Taxation

168.20

328.17

95%

Earning Per Share (Rs.)

3.28

6.39

95%

FUTURE OUTLOOK

The continued high demand of steel world wide has kept the prices of steel on the higher side throughout the year especially in higher grade steel. In view of volatile conditions in the steel supply and prices, special attention was given to strengthening of the supply chain and new supply sources have been identified and added. Work on IPI has gained momentum due to foreseeable energy deficit in the country. IGSL (Interstate gas system limited) is now in the process of pre-qualifying engineering companies for the Pakistan portion. CSAP is actively pursuing to get this opportunity. From the cotton division point of view, the company is fully cognizant of the possible shortage of cotton with high prices and is prepared to do everything possible to mitigate the adverse impact of such an event. Whereas it's Investment and Infrastructure Development Division is taking all the measures to mitigate the market risks through diversification in the portfolio with significant portion of their investment in defensive stocks and shock absorbers to manage the market volatility.