Mughal Steel targets Rs127/share as earnings momentum accelerates

August 19, 2025 (MLN): Mughal Iron and Steel Industries Limited (PSX:MUGHAL) is poised to reach a share price of Rs127/share by June 2026, up from the last price of Rs77.16/share, an upside potential of almost 80% in capital gain and dividend yield.

The outlook is supported by strong earnings growth driven by power cost savings, higher market share, and a rebound in construction activity.

Arif Habib Limited (AHL) has initiated coverage on MUGHAL with a “BUY” call.

The brokerage expects profitability to rise sharply to Rs12.1/share in FY26f and Rs16.7/share in FY27f, influenced by an expected five-year earnings CAGR of 21%.

AHL notes that MUGHAL’s valuations remain attractive, trading at a forward FY26/FY27 P/E of 5.9x/4.2x, well below its 10-year average of 9.0x.

A key earnings driver will be the company’s upcoming 36.5MW captive coal power plant (CPP), which is expected to contribute an average Rs4.3/share annually, which can translate into a 30% boost to earnings over the next five years.

Even under a conservative power mix of 50% captive and 50% grid in FY26, power costs are expected to decline from Rs35/unit to Rs27–28/unit, improving ferrous margins by 3–5%, lifting them to the 10–11% range.

A host of factors favor the ferrous segment’s gross profitability, arising in tandem and significantly strengthening the outlook.

Firstly, the reduction in duties on steel scrap under the National Tariff Policy will directly improve primary margins by 1–2%.

 The 5% regulatory duty (RD) and 2% additional customs duty (ACD) are being phased out, with the RD reduced to 0% by FY27, effectively eliminating duties on shredded scrap.

Additionally, MUGHAL is leveraging synergies between its ferrous and non-ferrous businesses. Previously sold in the local market, the residual scrap is now internally transferred to the ferrous segment, serving 8–10% of its raw material requirements at a lower cost.

This shift means that what appears as a drop in non-ferrous gross margins is in fact a transfer of margin gains into the ferrous segment, expanding its profitability.

At the same time, global steel scrap prices have fallen to multi-year lows. While the 5-year trailing average FOB price stood at $386/MT, forward projections suggest an average closer to $350/MT due to subdued construction activity in China, slower global infrastructure investment, and weaker macroeconomic growth.

This reduction is set to improve margins by an additional 2–3%.

 MUGHAL has also strengthened its position in the long steel market, increasing its market share from the historical 5% to around 7–8% in FY24–FY25.

With utilization currently at 55–60%, the company aims to raise it to nearly 70% by FY30, aided by a robust distribution network and support from its high-margin copper segment, according to the findings by AHL.

Favorable government policies and falling international scrap prices are also expected to bolster profitability.

The removal of duties on steel and motor scrap, coupled with scrap prices being 28% lower than FY22 peaks, is projected to raise primary margins by 3–4%, from 27% to 31%.

On the demand side, a revival in construction activity is set to support sales growth, as interest rates have halved to 11%, energy costs decline, and government housing initiatives gain momentum.

Meanwhile, MUGHAL’s non-ferrous copper business has emerged as a significant growth avenue. The segment, which consistently delivers 25% gross margins, is expected to benefit from surging global copper demand linked to EVs and AI semiconductors.

Recent regulatory changes under the EFS scheme (S.R.O 1435(I)/2025) are expected to streamline scrap imports, paving the way for stronger export growth ahead.

With cost savings from the CPP, renewed demand from construction, and expansion in copper exports, MUGHAL is well-positioned to deliver sustained earnings growth and strong shareholder returns in the coming years.

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