Earnings Report /
Pakistan

Mughal Iron & Steel Industries: 1QFY23 Review - Earnings beat on GMs and other income

  • MUGHAL posted a profit of PKR872mn (EPS: PKR2.60) for 1QFY23, down 48% YoY and 5% QoQ.

  • MUGHAL has posted gross margins of 14.8%, up 1ppt QoQ and down 4.8ppt YoY.

  • MUGHAL has posted a decent result; mostly due to elevated ferrous gross margins.

Intermarket Securities
28 October 2022

MUGHAL posted a profit of PKR872mn (EPS: PKR2.60) for 1QFY23, down 48% YoY and 5% QoQ. Profits are above our expected EPS of PKR1.43, where the major deviation stemmed from higher-than-expected gross margins and other income. Despite softer demand and surging interest rate, the company was able to produce a decent result.

Key Observations:

  • Revenue has clocked in at PKR14.1bn, flat QoQ and down 26% YoY, lower than our expected revenue of PKR15bn. Lower-than-expected volumes majorly led to the decline.

  • MUGHAL has posted gross margins of 14.8%, up 1ppt QoQ and down 4.8ppt YoY. However, GM’s clocked in higher than our expectation of 12.2%. The YoY increase in margins can be attributed to lower-than-expected scrap cost in the ferrous segment. 

  • Distribution costs are up 10% YoY and 12% QoQ to PKR61mn, due to higher fuel and transport cost during the quarter, in our view. Admin expenses clocked in at PKR147mn down 9% YoY and 19% QoQ . 

  • Finance cost has clocked in at PKR882mn, almost double YoY due to increase in short-term debt and interest rates amid greater borrowing on account of raw material stocking.

  • Additionally, the company has registered an ETR of 15.5% versus IMS estimate of 31% despite super tax implication .

MUGHAL has posted a decent result; mostly due to elevated ferrous gross margins. That said, moderating non-ferrous (Copper) margin to c.18%, from 35% in SPLY is a point of concern, in our view.  Going forward, we assume girder sales are likely to play a major role for MUGHAL. As it is a key component in rural house construction (roofing). We have a Buy stance on MUGHAL with a June 2023 TP of PKR121/sh.