Mughal Iron & Steel Industries Ltd. (MUGHAL) reported a consolidated NLAT of PKR24mn (LPS: PKR0.07) for 1QFY25, compared to an NPAT of PKR515mn SPLY. While results exceeded expectations due to stronger-than-expected margins, rising finance costs led to a net loss. The company also announced the board’s approval of a PKR1bn capital expenditure budget for civil works as part of the ongoing upgrade of its re-rolling mill.
Key highlights from 1QFY25:
§ Net sales dropped 15% QoQ (flat YoY) to PKR21.6bn, driven by weakness in construction demand (cement sales down 7% QoQ) and 5% lower copper prices. We had projected revenues of PKR23.8bn.
§ Gross margins recovered by 4.1ppt sequentially to 9.2%, above our estimated 5.9%; the variance arises from a substantial 13.3ppt sequential jump in nonferrous margins to 26.5% despite a decline in global copper prices. In our view, the latter suggests a sharper fall in motor mix scrap prices than copper prices.
§ Finance costs of PKR1.9bn were up a substantial 13% QoQ (19% YoY), despite lower interest rates due to a 7% QoQ (37% YoY) rise in total debt which currently stands at PKR37.8bn (53% of total assets).
§ The company recorded a tax reversal of PKR84mn, which helped it to counter the PKR108mn loss before tax.
MUGHAL has posted a pre-tax loss for the third consecutive quarter, largely due to high finance costs. However, unlike peers such as ASTL and AGHA, MUGHAL remains the only company that reports operating profits. Continued monetary easing and commissioning a 36.5MW coal captive power plant (expected to come online in 3QFY25) should support profitability in 2HFY25. Our stance on MUGHAL remains a Buy with a TP of PKR132/sh.
Courtesy – IMS Research