Mughal Iron & Steel Industries posted a profit of PKR1.0bn for 4QFY22,

MUGHAL posted a profit of PKR1.0bn (EPS: PKR3.10) for 4QFY22, up from PKR0.8bn (EPS: PKR2.50) last quarter. This has translated FY22 NPAT to PKR5.4bn (EPS: PKR16.12), c.13% up from SPLY. The announcement is against our earnings expectation of PKR2.25/sh, where the major deviation stemmed from lower than expected tax rate (15.3%) and finance cost. Despite a dampened demand outlook and surging interest rate the company was able to produce an impressive result, albeit opting out of a final cash dividend versus our estimated DPS of PKR1.25.

Key Observations:

Revenue has clocked in at PKR18.9bn, up 25% QoQ and YoY, higher than our expected revenue of PKR17.4bn, where the deviation is led by higher than expected volumes.

MUGHAL has posted gross margins of 13.9%, up 1.8ppt QoQ and c.1.3ppt YoY. However, lower than our expectation of 15.7%. The decrease in margins is attributed to higher-than-expected scrap and energy costs, in our view.   

Distribution costs are up 29% YoY (albeit down 41% QoQ) to PKR55mn, due to lower fuel and transport cost during the quarter, in our view. Admin expenses clocked in at PKR181mn up 28% YoY, but remained flat QoQ basis. 

Finance cost has clocked in at PKR854mn, more than doubling YoY due to (i) increase in short-term debt amid greater borrowing on account of raw material stocking, and (ii) increase in the interest rates.

Additionally, in a surprising move the company has registered an ETR of 15.3% in 4Q despite one-off super tax implication. Upon further discussion with management we are able to deduce that the company has possibly availed tax credit of c.PKR400mn on previous capex, shielding them from a higher tax rate. 

MUGHAL has posted an impressive result; mostly due to elevated volumetric sales, lower than expected finance cost and tax rate. Though the company has chosen not to payout, we believe their decision has been influenced by their current copper and aluminum expansion, which is set to come online in 2HFY23 and FY24, respectively. Going forward, we assume girder sales will be a key component for MUGHAL as it is a key component in rural house construction. We have a Buy stance on MUGHAL with a June 2023 TP of PKR121/sh.

Courtesy – Intermarket Securities Limited.

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