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.