IMS Steel Universe is projected to report a cumulative NPAT of PKR914mn for 4QFY24, reflecting a 6.4x QoQ increase. This increase is driven primarily by robust Mughal profitability despite underwhelming ISL and ASTL performances.

Rising copper prices are set to boost Mughal’s profitability, while ASTL and ISL are expected to see declines due to lower fixed cost absorption and shrinking CRC-HRC margins, respectively.

We expect Mughal and ISL to announce year-end DPS of PKR1.0 and PKR1.5, respectively, with ISL’s full-year payout at PKR4/sh. Mughal remains a top pick due to its diversification into lucrative copper exports and efforts to reduce grid reliance.

ASTL: Finance costs continue to mount

Amreli Steel Ltd. (ASTL) is projected to post a 4QFY24 NLAT of PKR866mn (LPS: PKR2.92) compared to a loss of PKR666mn (LPS: PKR2.24) in the previous quarter. This will bring FY24 NLAT to PKR2.2bn instead of a loss of PKR678mn last year. Although rebar prices were unchanged sequentially, demand in the South fell by 14% QoQ in 4Q (based on data of cement dispatches); these will lead to estimated revenues of PKR9.8bn, down 12% QoQ and 9% YoY. Gross margins are expected at 7.7%, flat sequentially, as higher electricity costs will offset lower scrap costs. Finance costs remain a problem for the company and are expected to come in at approximately PKR1.3bn, four times the estimated EBIT. We hope that ASTL will utilize its deferred tax assets to reduce its expenses in a way that is similar to the previous quarter.

Mughal: Non-ferrous segment to drive earnings

Mughal Iron & Steel Industries Ltd is projected to post a 4QFY24 NPAT of PKR1.21bn (EPS: PKR3.61), surging by 12x QoQ and 45% YoY. This will take FY24 NPAT to PKR2.6bn, down 25% YoY. We estimate revenues of PKR21.9bn in 4Q, up 4% QoQ and 16% YoY, as higher non-ferrous sales offset weakness in the steel segment. Like ASTL, steel demand is expected to have pulled back in 4Q, negatively impacting ferrous segment sales as prices were unchanged sequentially. On the other hand, global copper prices rose sharply by 15% QoQ hitting a peak US$10,800/ton. Because of the latter, we expect gross margins to rise 6.7ppt QoQ to 13.4%. Finance cost is expected to be a substantial PKR1.3bn (after-tax impact of PKR3.3/sh). We expect a dividend of PKR1.0/sh.

ISL: Margin compression continues
International Steels Ltd (ISL) is expected to report an NPAT of PKR 569mn (EPS: PKR 1.31), down 19% QoQ and 70% YoY. We estimate revenues at PKR 17.1bn, up 5% QoQ, driven by a slight increase in volumetric sales due to an 8.5% rise in 2/3 wheeler sales. However, declining international CRC prices (down 8% QoQ) will impact export revenues. The CRC-HRC spread contracted by 24% QoQ, from US$93.5 to US$71.5 and is expected to reduce gross margins by 0.6ppt to 11.1%. Finance costs are projected to rise by 27% QoQ to PKR220mn due to higher short-term borrowings. Export sales comprise around 30% of total sales and are expected to lower the effective tax rate to 29%, though this will be the last quarter benefiting from preferential tax treatment. We expect a dividend of PKR1.5/sh along with the results.