Dear Clients,

Mughal Iron & Steel Ltd (MUGHAL) announced its 2QFY21 result earlier today, posting a bottom-line of PkR1.0bn (EPS: PkR4.16/sh), up 10x Y/Y while up 3x Q/Q. The result was above market consensus. Higher than expected earnings are on account of improved margins and exchange gains.

– For 1HFY21, the company reported Profit after tax of PkR1.4bn (EPS of PkR5.56/share), up 282% Y/Y.

– The company announced interim dividend of PkR3.0/sh as well a right issue of 16% at a premium of PkR58/sh.

– Revenue increased by 58%Y/Y and 51% Q/Q to PkR11.7bn on the back of improved prices as well as higher volumes from ferrous and non-ferrous segments. Cost of Sales went up 45% Y/Y and 45% Q/Q to PkR10.0bn while GP margins improved by 3.7ppts on sequential basis and 7.8ppts Y/Y to 14.8%. We attribute the improvement in GP margins to cheap inventory consumption as well as increase in product rates.

– Sales and Marketing expenses were up 36% Q/Q but remained flattish Y/Y to PkR39mn. Admin expenses increased by 7% Q/Q and 19% Q/Q to PkR125mn.

– Financial charge tapered by 14% Y/Y while declining by 5% Q/Q to PkR297mn. We attribute the decline to lower markup rates.

– Other charges were noted at PkR91mn, up by 3x Q/Q owing to provision of workers’ profit participation fund and workers’ welfare fund. At PBT level, MUGHAL reported a profit of PkR1.2bn compared to profits of PkR0.4bn in 1QFY21.

– Furthermore, the company has changed its accounting policy in respect of PP&E. The company has moved from cost based measurement to revaluation based model. As a result, the company has incurred a revaluation surplus amounting to PkR4.7bn in 1HFY21.

– The company currently holds elevated inventories of raw material as a strategy to accumulate scrap at cheaper rates. The company may continue to see these margins in the upcoming quarter as a result. 

Regards,
KASB Research