November 3, 2021 (MLN): Mughal Iron and Steel Industries Limited (MUGHAL) has recently completed BMR of its rerolling mill and debottlenecking of its melting capacity which provides the company a potential to expand its sales volumes as previously lower effective available capacities became hurdle in growth.
Alfalah securities, in its report highlighted multiple positive factors that will keep demand outlook of the company robust with government’s inclination to facilitate construction sector being at the forefront.
According to the report, impending deadline to complete grey structures under construction amnesty will keep growth momentum intact for next two years. Moreover, going by historic precedent, anticipated hike in development spending as election draws near will also bode well for the sector.
Shrinkage of pricing differential between graded and ungraded rebars has proved beneficial for company. This provides room for further enhancement in capacity utilization as people shift away from ungraded rebars having lower yield and tensile strength towards prime rebars.
Furthermore, with new installed capacities, MUGHAL can also explore Southern market as cost of south bound transportation is significantly lower than that of North bound cargo. Besides, the recent increase in girder prices and elimination of its discount to rebar prices has presented a boon for company as it is one of the few players having girder manufacturing unit.
The report projected rebar offtake to increase 18.7% YoY in FY22 after recent commencement of new re-rolling capacity. Next 5-year volumetric compound average growth thus clocks in at 11.5% for rebar segment.
Similarly, girder offtake is also expected to remain strong on the back of good farm economics. New rebar capacity will also come in handy in event of full-fledged demand from water reservoir projects up North.
Moreover, the company has been consistently investing to improve its capacities in this segment and has announced installation of three new melting furnaces. These furnaces will be crucial to increase utilization of rerolling capacity, the report said.
Apart from its core business of manufacturing rebars and girders, MUGHAL is also engaged in export of copper ingots. Copper prices have remained elevated FYTD averaging at $9458/Ton in last 4 months against 10-year average of $6635/Ton. Elevated output price implies higher margin on copper export. This is also evident from 1QFY22 results wherein the company recorded operating margin of 34% on non-ferrous segment while ferrous segment operating margins remained 13%.
In FY22, the company is expected to export 8500 Tons of copper ingots in against 6188 Tons exported in FY21, leading to estimated EPS contribution of Rs12.1 this year, the report projected. The report also emphasized that in case core margins take a plunge, the non-ferrous segment will act as savior for the company as high demand for copper is expected to persist on the back of global shift away from internal combustion engines towards electric powered engines in automotive industry.
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