AHL Research published an optimistic report on MUGHAL

AHL Research published a special report on Mughal Iron and Steel Industries and remarked that we initiate coverage on MUGHAL with a “BUY” rating and a Jun’26 target price of PKR 127/share, offering a total upside (capital gain and dividend yield) of 83% from current levels of PKR 71/share.

We expect MUGHAL’s profitability to rise sharply, reaching PKR 12.1/share in FY26f and a robust PKR 16.7/share in FY27f as the full impact of the Captive Coal Plant (CPP) is realized. We forecast a robust 5-year (FY26-30) forward earnings CAGR of 21%, underpinned by:

Cost efficiencies from the 36.5MW coal-fired power plant, reducing reliance on expensive grid power and restoring ferrous margins.
Market share gains achieved through resilient operations in FY24–FY25, positioning the company for stronger volume growth ahead.
Lower raw material costs following duty removals on steel scrap and motor scrap, enhancing competitiveness and profitability.
Revival of construction activity is driving sustained demand for ferrous products.
Earnings diversification through a high-margin non-ferrous segment, supported by surging global copper demand linked to the AI and EV boom, and facilitation of copper exports through EFS.

The stock is trading at an attractive FY26/FY27 P/E of 5.9x/4.2x compared to the last 10-year average P/E of ~9.0x.

Cost savings from the upcoming 36.5MW Coal-fired power plant (CPP)

The upcoming 36.5MW Coal-fired power plant (CPP) being set up by MEL (Mughal Energy Limited), a wholly owned subsidiary of MUGHAL, is set to contribute a 5-year forward average of 30% to earnings (averaging PKR 4.3/share). Even with a conservative power mix of 50% captive and 50% grid initially (FY26), the current grid cost of PKR 35/unit will be reduced to PKR 27-28 per unit in FY26 and enable further power savings in the years ahead. We expect savings from the CPP alone to improve ferrous margins by 3-5%, taking the overall ferrous margins to the 10-11% range.

Leading market share in the ferrous segment

MUGHAL’s market share in the long steel segment has averaged 5% historically, but in FY24 and FY25 has firmly entered the 7-8% range. We project this share to sustain in that range, with a 5-year forward average market share of 7.8%. MUGHAL will likely be able to retain much of this growing market share due to strong distribution networks, the support of a high-margin copper segment, and superior working capital management. As the rest of the industry operates well below capacity, MUGHAL, as of now, is operating at ~55-60% capacity in its ferrous segment, and we expect utilization to grow to ~70% by FY30.

Lower raw material costs and a favorable duty structure

Raw material costs for the ferrous and non-ferrous segments are set to fall due to a favourable duty structure and stable scrap prices internationally, both of which bode well for MUGHAL. The reduction of duties on steel scrap lowers costs for the ferrous segment significantly, and results in primary margins (Scrap-Rebar) 1-2% higher. Additionally, the declining price of steel scrap is expected to realize a 2-3% improvement in margins, as scrap prices are currently ~28% lower than their peak in FY22. Cumulatively, this should result in a 3-4% improvement in primary margins from ~27% to ~31%.

Revival of construction activity

On the back of improving macros, aggregate demand is set to pick up; interest rates lowered from 22% to 11%, a stable USD/PKR exchange rate, and lower energy costs, all of which lay a foundation for a strong comeback by the construction sector. The Federal and provincial governments have also renewed focus on the sector through home financing schemes and loan guarantees. These factors will drive demand for long steel, an industry closely allied to construction.

A high-margin non-ferrous segment

MUGHAL’s copper export business has not only helped the company stay resilient in the ferrous downturn of FY23 and FY24, but has locked the company into a crucial global supply chain going forward; central in everything from EVs to AI-chip semiconductors, copper demand and prices present a very favorable future for this line of business. Even if inputs like grid costs were to rise, the CPP savings and the high-margin nature of the copper business (~25% GMs since FY21) give much room to absorb this impact. While the segment faced low utilization in 4QFY25 and early 1QFY26, the FBR’s S.R.O 1435(I)/2025, (dated 5th August, 2025), will serve to streamline scrap imports under the EFS and facilitate a resurgence in copper exports.

Courtesy – AHL Research