AKD Securities Ltd. organized Analyst Briefing of Mughal Iron & Steel Industries Limited (MUGHAL) to discuss FY21 result and future outlook of the company.
To highlight, the company reported outstanding NPAT of PkR1.7bn (EPS: PkR5.03) in 1QFY22 vs. NPAT of PkR0.3bn (EPS: PkR1.05) in the same period last year. In FY21, earnings stood at PkR3.4bn (EPS: PkR10.2) in FY21 vs. NPAT of PkR0.6bn (EPS: PkR1.8) in the same period last year.
Key highlights of the briefing were:
· Finally, coal based power plant project under the name Mughal Energy is in process, which will provide electricity at concessionary rates to Mughal Steel.
· The topline registered a growth of 81/65%YoY to PkR14.0/44.9bn mainly due to increase in gross margins to 19.6/14.9% in 1QFY22/FY21 against 12.5/9.6% witnessed in 1QFY21/FY20 owing to increase of 41/40%YoY in local rebar prices in 1QFY22/FY21 and +45%YoY in copper prices in FY21.
· Moreover, segment wise, Ferrous segment posted net sales of PkR10.3/34.2bn (+52/28%YoY) with a gross margin of 14/11% in 1QFY22/FY21 vs 6/9.6% in 1QFY21/FY. Non-Ferrous segment posted net sales of PkR3.75/10.5bn with a gross margins of 35/28% in 1QFY22/FY21 vs 47/10%YoY in 1QFY21/FY20.
· MUGHAL’s re-rerolling capacity for rebars has increased to 430k tons in FY21 against 150k tons in FY20, an increase of 280k tons while for girders, total capacity has increased to 200k tons from 150k tons in FY20. Billet capacity of the company stands at 419k tons as FY21 and increased by 79k tons in FY21. In the non-ferrous Segment (copper), total melting capacity stands at 10k tons while capacity utilization for FY21 stood at 62%.
· Going forward, the management remains hopeful that uptick in construction demand is expected to continue which will stimulate long steel demand where company expects long steel demand to increase by 5-7%YoY in FY22, and ferrous demand for MUGHAL to increase by 20-22%YoY in FY22. Gross margins are going to remain stable as company efficiently procure raw material via bulk buying to secure supplies which provides a hedge against rising freight and raw material prices.
· In Non-Ferrous segment, company expects robust demand to continue the same upward trajectory in FY22 as was experienced in FY21 amid brilliant global outlook for Electric Vehicles (EVs). In terms of copper pricing, MUGHAL has established an esteem brand name in global market where the company is able to sell its products to a mere 3% discount to the benchmark LME index in contrast to average discount of 8-10%.
· Commenting on commodity upcycle, management stated that any increase in raw material and fuel prices would be passed on to end consumers. Moreover, higher international scrap prices has helped graded steel in gaining more market share as compare to ungraded steel because of lower price delta and higher retail demand.
Courtesy- AKD Research