Mughal Iron and Steel Industries Limited reported PAT of PKR 1.1Bn (EPS: PKR 4.41) in 3QFY21 compared to PAT of PKR 33Mn (EPS: PKR 0.13) and PKR 1.04Bn (EPS: PKR 4.15) in 3QFY20 and 2QFY21, respectively. Moreover, the company posted earnings of 2.5Bn (EPS: PKR 9.97) during 9MFY21, up 6.3x YoY. The boost in earnings can mainly be attributed to higher long steel prices (↑17% QoQ) and upbeat international copper ingot prices (↑17.5% QoQ) in 3QFY21. Key highlights of the result are summarized below: –

During 3QFY21, MUGHAL expanded its net revenue to PKR 10.4Bn (↑44 YoY) due to higher Ferrous and Non Ferrous product prices. The net sales declined 11% QoQ due to lower volumetric sales of long steel bars. The 9MFY21 topline increased to PKR 29.8Bn, up 37% YoY.

The company posted two year high gross margin of 21.2% in 3QFY21, an accretion of 12.4/6.4ppt compared to 3QFY20/2QFY21. The improved margins were as a result of increase in international scrap-rebar spread (↑20/10% YoY/QoQ) and mixture of higher margins from sales of Non Ferrous product (GM 26.8% in 9MFY21). The gross profit clocked in at PKR 2.2Bn, up 246/27% YoY/QoQ.

The sales and marketing expense increased by 3.6/3.7x YoY/QoQ to PKR 144Mn to support the massive sales export of copper ingot to China. The administration expenses increased to PKR 155Mn, up 38/24%, YoY/QoQ.

The other charges head increased exponentially to PKR 231Mn, up 2.5x QoQ. The other income reported a loss of 8Mn compared to gain of PKR 7Mn and 37Mn in 3QFY20/2QFY21.

Finance costs reported at 354Mn, increased by 19% QoQ due to higher debt levels but decreased by 30% YoY due to lower interest rates.

Our Dec’21 target price for MUGHAL is PKR 125/sh, offering upside of 30% from last close. Further analysis will be done once detailed results are out.

Courtesy – BMA Capital Management Ltd.