Equity Analysis /
Pakistan

Mughal Iron & Steel Industries: Q3 FY 19 results: Earnings beat as margins improve sequentially

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    30 April 2019

    Mughal Steels (MUGHAL) posted Q3 FY 19 NPAT of PKR362mn (EPS: PKR1.44), up 11% yoy and flat qoq, taking 9M FY 19 earnings to PKR1,075mn, up 13% yoy. This came in higher than our expected EPS of PKR1.17 due to sequentially improved margins and lower effective tax rate.

    Key highlights include:

    • 26% yoy growth in top line, as new capacity is online while rebar prices are also up (qoq sales are down 15%, possibly due to seasonal slowdown in girder sales).
    • Gross margins of 12.0%, up from 10.9% in Q2, potentially due to lower scrap cost and stable girder prices.
    • 55% yoy increase in finance cost on account of higher short-term borrowings and interest rates.
    • Effective tax rate of 14%, likely due to credits booked from ongoing investments.
    • In 9M FY 19, NPAT is up 13% yoy due to higher sales and moderate decline in margins. Additionally, lower taxation masked rising finance cost.

    We have a TP of PKR56/sh for MUGHAL, but we will revise our estimates after the release of further details from the company.

    Risks: (i) Decline in rebar/girder prices due to competition, (ii) drastic increase in the scrap prices, and (iii) withdrawal of regulatory duty.