Alchevsk Steel net loss doubles in 9M13

Alchevsk Steel (ALMK UK) reported a 1% yoy revenue increase for 9M13 to USD 1,350 mln against a 19% yoy increase in rolled products output to 2.8 mmt. In 9M13, the company’s EBITDA turned negative at USD 46 mln vs positive EBITDA of USD 56 mln a year before, and it generated a net loss of USD 142 mln, double as much as in 9M12. In 3Q13, Alchevsk Steel faced a 14% qoq decline in revenue to USD 413 mln and its negative EBITDA fell 8% qoq to USD 21 mln, deepening net loss by 9%.

Roman Topolyuk: Alchevsk Steel’s financial results are disappointing despite its remarkable operating performance (19% yoy growth in rolled products output in 9M13 vs. a 1% yoy output decline in the Ukrainian steel industry). Our major concern is that its selling price and production cost dynamics in 3Q13 are detached from reality, having decreased 15% and 13% qoq respectively.

Such a quick pace of decline can’t be explained by a change in price for any finished products, as well as for any production inputs, which leads us to conclude the company made extensive use of transfer pricing. A 5% rise in total debt between June and September to USD 1.8 bln, representing 69% of the company’s total assets, is another argument against investing in the stock.