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A review of Mughal Iron & Steel Industries –

We update our estimates for Mughal with a moderate outlook for domestic demand and increased taxation (for exports). Still, we raise our TP to PKR132/sh (rolled over to June 2025) and maintain our Buy rating. Mughal’s diverse product portfolio shields it from product-specific market downturns. It is one of the top picks in IMS Universe.

Mughal’s copper exports business remains a growth kicker and adds resilience against weak domestic demand for steel. Global copper prices (up 16% 2024TD) are riding the global macro recovery and the transition towards renewables and electric vehicles. We expect copper to contribute 57/51% of total earnings in FY25/26f.

Mughal is focusing on cost efficiencies, such as installing a non-ferrous recycling plant and investing in a coal-based power plant, which will not only provide cheap electricity but also reduce the tax rate.

Resume coverage with a Buy rating and a TP of PKR132/sh

We resume coverage on Mughal Iron & Steel Industries Ltd. with a Buy rating and an upgraded TP of PKR132/sh. We have adjusted our estimates with the increased export taxation (passed in the FY25 Budget) and assume a more moderate outlook for domestic construction activity. Still, Mughal stands out among both long and flat-steel peers, courtesy of its exports of copper ingots and exposure to the rural economy in Punjab, which together constitute two-thirds of its revenues. Rural sales of steel girders remain resilient against slow macro growth (bolstered by strong agri-dynamics), while copper exports benefit from the global macro recovery and transition towards renewables and electric vehicles. In our view, investment in cost efficiencies – solar and coal-based power plants (Mughal Energy) – would increase margins and moderate the recent increase in taxation.

Better positioned than peers

Despite the weak outlook for construction activity during FY25 (cement demand expected flat), Mughal is better positioned than its peers. The company benefits from a diversified product mix, including rebars, girders, and copper ingots and granules. Mughal draws most of its domestic sales from Punjab, the epicenter of demand, which is benefiting from a favorable political environment. The PML-N-led provincial government will look to ramp up infrastructure spending (once the fiscal situation improves, likely beyond FY25) to regain its political standing.

Non-ferrous segment to drive profitability

Surging copper prices driven by robust demand from renewable energy, electric vehicles, and data centres position Mughal’s non-ferrous segment for strong profitability. Proximity to China, the world’s largest copper market, ensures stable product demand. With rising copper prices, projected export revenue is expected to grow at a CAGR of 14.5% over the next three years.

Focus on improving efficiencies.

Mughal continues to focus on cost efficiencies by investing in a recycling facility that reduces scrap recycling time through automation. Additionally, Mughal Energy Ltd (MEL), a 36.5MW coal-fired captive power plant, will reduce energy costs, relative to national grid supply and thus improve margins (average consolidated gross margins estimated at 16% over FY25-26f). The removal of tax benefits for exporters is mitigated by MEL’s tax-free status, optimizing the effective tax rate (average 32% over FY25-27f).

Courtesy –  Intermarket Securities Limited

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