Mughal organized its analyst briefing yesterday, and the following points were discussed:

· Company successfully completed its non-ferrous recycling plant from which the extracted ferrous component is proved to positively contribute to company’s performance.

· LC restrictions remained a big challenge for the company which negatively impacted their domestic supply chain throughout the previous year, with capacity utilization standing low at 35% during FY23. However, management expects improvement in utilization during FY24 amidst better supply chain situation through absence of LC restrictions.

· Smuggled steel products in the country also negatively impacted the company’s sold volumes but some relief was seen with the recent government’s measures.

· Moreover, an area of 100-150km was flooded from Karachi to North which affected the commodity transport.

· The company continued diversifying and added a new product, copper granules, to their portfolio. This has allowed them to eliminate the conversion cost of melting copper ingots which will now be provided as a product on-demand.

· The company recorded rebar sales of approximately 150,000MT, going down from 200,000MT in FY22. The company believes that this was due to repressed consumption resulting from 8-10% increase in interest rates and apprehension given adverse macro-economic conditions. However, the company has seen a revival in consumer demand in the last two months.

· The company has successfully achieved commissioning for its copper expansion project, where it is expected to realize sales worth PkR25bn after achieving COD in coming 14-16 months.

· At the moment, China remains Mughal’s main customer, with the company also sharing long-term contracts with some state owned companies. The company claims to have a copper installed capacity of 7k MT where 700-1000 MT is being utilized for copper granules. With the completion of its second phase, production will increase by 25%-30%.

· Of the rebar cost, 45%-50% is dedicated to scrap, 28%-30% to custom duties & taxes, 20% to energy, and 8%-10% towards financial cost.

· Mughal Supreme rebar is a high ductile steel which has gained popularity in the local market.

· The company uses ISRI graded scrap in their production whereas locally available scrap is priced at PkR170,000-180,000/ton. Ungraded steel rebar prices are untraceable but generally range from PkR240,000-250,000/ton.

· Gas captive power plant majorly stays idle given uneconomical gas prices. With the recent acquisition of Mughal Energy, Mughal steel would also be using coal captive power generation.

· Of the sourced motor scrap, melting yields 50%-65% of ferrous products.

· Girder market presents some logistical difficulties but Mughal claims to be spearheading the market. And the company enjoys a competitive edge where good quality girders are produced keeping in line with European plants’ standards.

· The weighted average cost of electricity was PkR30-32/kwh in FY23.

· The new coal (hybrid) power plant will entail a capacity of 36.5MW where coal, bagasse, and cotton sticks will be the fuel inputs. This plant will substantiate 30%-40% of Mughal’s power generation requirements and the remaining will come from other sources like grid.

· Mughal is expecting to sign contracts of copper granules in the long term with customer demand generating from the use of electric vehicles. The company is also conducting R&D to explore more grades of copper granules to produce value added products in the future.

· The axle load limit regime does not have an impact on the company’s profitability since it uses its own transport system.

Courtesy – AKD Research