Topline Pakistan Research has evaluated the performance of Mughal Iron & Steel Industries (MUGHAL) and provided a forecast for its future growth. The research house revised its earnings estimates for MUGHAL downward by 7-56% for FY25, FY26, and FY27, projecting earnings of Rs 2.0, Rs 14.1, and Rs 18.8, respectively.
– The target price for MUGHAL as of June 2026 has been adjusted down to Rs 110 per share from the previous Rs 125 per share, reflecting a decrease of 12%. Nonetheless, we maintain a ‘Buy’ stance, believing the stock could yield a total return of 57% (approximately 5% per day) based on its last closing price of Rs 72 per share.
– The downward revision in earnings is attributed to lower export volumes from the Non-Ferrous (Copper) segment and delays in the commissioning of the captive coal plant. However, these issues have been somewhat alleviated by higher utilization rates in the Ferrous segment and a reduction in grid rates, leading to lower energy costs.
– Lower Exports from the Copper Segment: We anticipate export sales from the copper segment to reach 4.2, 5.5, and 6.0 thousand tons in FY25, FY26, and FY27, respectively, down from earlier estimates of 8.8, 9.7, and 10.1 thousand tons. The reduction in volume is due to uncertainties arising from increased tariffs on Chinese exports to the USA. According to channel checks, MUGHAL has suspended operations in the copper segment for the majority of 4QFY25. MUGHAL exports copper granules and ingots to China, which are then processed and shipped to developed markets. We expect copper exports to resume by late August, with a deadline for the China-US trade agreement set for either August 25 or September 25, as reported by Reuters.
– Captive Coal Plant Expected to be Online by September 25: 36.5 MW captive coal plant is projected to be operational by September 25, according to channel checks. This is a shift from earlier estimates that suggested commissioning would occur at the beginning of Q1 FY26. The generation costs from coal are expected to be around Rs 23-24 per kWh for FY26/27. This change would adjust the company’s generation cost to Rs 29-28 per kWh in FY26/27, compared to an average of approximately Rs 40 per kWh in FY25. The power mix is forecasted to transition from 100% grid energy in FY25 to a 51/49% grid/coal mix in FY26, and a 37/63% grid/coal mix in FY27. The use of coal for power generation and reduced grid rates are expected to enhance the gross margins of the Ferrous segment from 5% in FY25 to a range of 10-11% in FY26/27.
– Higher Sales from the Ferrous Segment: The decline in copper exports is being partially offset by increased sales in the Ferrous segment. Based on channel checks, the MUGHAL ferrous segment is currently operating at utilization levels of approximately 60% in 4QFY25, a trend we expect to continue into FY26/27. Ferrous volume estimates have been revised upward to 376,000 and 392,000 tons in FY26 and FY27, respectively, from previous estimates of 319,000 and 332,000 tons (an increase of 17% and 18%).
– Key Risks to Earnings: The main risks affecting earnings include: (1) delays in resuming copper exports beyond our forecasted restart date at the end of 1QFY26; (2) delays in the commissioning of the coal power plant; and (3) lower than expected volumetric growth.
