MUGHAL is scheduled to announce its 3QFY23 result on Monday, where we expect the company to record NPAT of PkR1.66bn (EPS: PkR4.95), up 2.5x/98% QoQ/YoY. It is worth noting that the strong incline in earnings is majorly attributed to sharp increases in retail prices of long-steel goods (PkR/USD depreciation and raw material shortages) during the outgoing period alongside readily available low-cost scrap inventories amidst relatively unrestricted imports for MUGHAL.

Moreover, the resurgence of China’s demand, driven by the complete recovery from COVID-related lockdowns in the country, is anticipated to have significantly boosted non-ferrous offtakes, where-in we expect sales from the said segment to stand at ~3k tons vs. 1.6k tons from previous quarter lows. For this this reason, gross margins for the quarter are expected to in at ~16.0% for the period vs. 1HFY23 average of 11.2%.

Overall, wrenching supply chain and import issues alongside a broad based economic down-turn (LSM: -5.45% during 8MFY23) continues to impact the overall sustainability of the Steel/Engineering sector where-in finished long-steel prices currently stand north of PkR280k/ton (up by ~20% vs. the previous quarter). Therefore, it will be important to keep an eye on how the company manages these challenges in the near-term. The company currently trades at a forward P/E of 3.0x with our TP of PkR70/sh providing a capital upside of 34% from the last close – Buy.

Courtesy – AKD Research