Mughal Iron & Steel Industries on track to eclipse competitors
Foundation Research has just released an update on its coverage of Mughal Iron & Steel Industries Limited (MUGHAL) stock. The research house has raised its Dec 24 target price to Rs. 137 per share.
Diversified product portfolio and cost savings
Mughal Iron & Steel Industries Limited is the leading graded long steel manufacturer in the North region. The company is highly recommended due to:
- Diversified product portfolio in the ferrous segment and double-digit margins in the nonferrous segment.
- Significant energy cost savings after commissioning a captive power plant, reducing reliance on the grid.
- Enhanced operational efficiencies due to a recycling plant in the nonferrous segment.
- A substantial revenue contribution from girders, which comprised 29% of FY23 revenue.
- Strong international copper prices are driven by a global shift towards renewables and electric vehicles.
Energy optimization and EPS impact
MUGHAL is installing a 36.5 MW Hybrid Coal Fired Power Plant via its subsidiary, Mughal Energy Ltd. The plant is expected to be operational by December 2024. The energy cost savings from this plant are projected to significantly improve gross margins and EPS from FY25 onwards.
Projected Impact on Margins and EPS:
- Gross margins are expected to increase by 211 basis points in FY25 and 429 basis points in FY26.
- EPS is projected to increase by PKR 3.8 per share in FY25 and PKR 9.0 per share in FY26.
Automation and improved efficiency in the nonferrous segment
The company installed a fully automated recycling plant for the nonferrous segment in June 2023. This transition from manual to automated processing has improved operational efficiencies, reduced labor input, and optimized processing times.
Key Changes:
- Transition from compressor scrap to motor scrap, which has a similar copper extraction yield but involves less hazardous waste.
- The plant produces copper granules instead of copper billets, streamlining the extraction process.
Future outlook and market conditions
Ferrous Segment
The ferrous segment is expected to benefit significantly from the energy cost savings post-commissioning of the coal-fired power plant.
Nonferrous Segment
The gross margins in the nonferrous segment are expected to increase to 18-20% from FY25 onwards, driven by operational efficiencies and high international copper demand.
Market and Policy Changes
The potential removal of GST exemptions in the FATA/PATA region could favorably impact MUGHAL by improving pricing equilibrium in the long steel market.
Financial projections
| Year | Revenue (PKR mn) | Gross Profit (PKR mn) | EBITDA (PKR mn) | EPS (PKR) | GP Margin (%) | EBITDA Margin (%) |
|---|---|---|---|---|---|---|
| FY23 | 67,390 | 9,671 | 9,257 | 10.37 | 14% | 14% |
| FY24E | 85,732 | 9,175 | 8,765 | 8.45 | 11% | 10% |
| FY25E | 104,948 | 14,553 | 13,966 | 21.85 | 14% | 13% |
| FY26E | 121,956 | 19,691 | 19,019 | 32.81 | 16% | 16% |
Key Assumptions and metrics:
| Metric | FY22 | FY23 | FY24E | FY25E | FY26E |
|---|---|---|---|---|---|
| PKR/USD | 160 | 249 | 283 | 287 | 305 |
| Inflation | 12% | 29% | 25% | 13% | 10% |
| Coal Factory Landed Price PKR/MT | 48467 | 43242 | 39271 | 42289 | 42931 |
| Grid Rate PKR/kwh | 22 | 30 | 41 | 50 | 54 |
| International Steel Prices USD/MT | |||||
| Rebar China Export | 804 | 602 | 553 | ||
| Billet China Export | 647 | 538 | 478 | ||
| Shredded Scrap | 498 | 394 | 377 | ||
| Primary Spreads USD/MT | |||||
| Rebar – Scrap | 305 | 209 | 176 | ||
| Rebar – Billet | 157 | 64 | 74 | ||
| Billet – Scrap | 149 | 144 | 101 | ||
| Copper LME Price | 9623 | 8296 | 8722 | 8500 | 8500 |
| Domestic Steel Prices (North) PKR/MT | 188531 | 243860 | 263482 | 276750 | 301357 |
| Volumetric Sales MT | |||||
| Ferrous | 309626 | 221000 | 274500 | ||
| Rebars | 198338 | 141566 | 175837 | ||
| Girders | 82501 | 58886 | 73142 | ||
| Others | 28787 | 20547 | 25521 | ||
| Non Ferrous | 8132 | 5600 | 7400 | ||
| Growth Y/Y | |||||
| Ferrous | 1% | -29% | 24% | ||
| Non Ferrous | 27% | -31% | 32% | ||
| Capacity Utilization Ferrous | |||||
| Rerolling | 49% | 30% | 44% | 44% | 49% |
| Melting | 52% | 36% | 56% | 56% | 63% |
| Net Revenue PKR Mn | 66152 | 67390 | 85732 | 104948 | 121956 |
| Local | 52885 | 52349 | 65344 | 79098 | 94180 |
| Export | 13268 | 15042 | 20223 | 25850 | 27776 |
| Gross Margins | 15% | 14% | 11% | 14% | 16% |
| Ferrous | 10% | 10% | 5% | 10% | 14% |
| Non Ferrous | 29% | 25% | 31% | 20% | 20% |
| EPS | 16.1 | 10.4 | 8.5 | 21.9 | 32.8 |
This table captures all the key metrics for Mughal Iron & Steel Industries Limited across the fiscal years provided.
Disclaimer:
The information in this article is based on research by Foundation Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.
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