Karachi, February 17, 2023 (PPI-OT): MUGHAL and ASTL – 2QFY23E Result Previews

MUGHAL – Earnings to clock in at PkR2.42/sh in 2QFY23: MUGHAL is scheduled to announce its 2QFY23 result on Monday, where we expect the company to record NPAT of PkR812mn (EPS: PkR2.42), down by 7%QoQ vs NPAT of PkR872mn (EPS: PkR2.60) in the previous quarter. It is worth noting that the resilience in earnings is majorly attributed to readily available low-cost scrap inventories from the previous quarter, which helped to offset some of the challenges associated with supply chain and raw material procurement issues. Although, strict COVID related lockdowns in China may have impacted offtakes of the non-ferrous segment, where we expect a decline of 30% in the said segment, for this reason, gross margins for the quarter to clock in at ~13.9% for the period vs. 14.8% from the quarter before.

Overall, wrenching supply chain and import issues alongside a broad based economic down-turn (LSM: -3.68% during 6MFY23) continues to impact the overall sustainability of the Steel/Engineering sector where-in finished long-steel prices currently stand north of PkR300k/ton (up by 46% vs. the previous quarter). Therefore, it will be important to keep an eye on how the company manages these challenges in the near-term. The company currently trades at a forward P/E of 2.9x with our TP of PkR65/sh providing a capital upside of 35% from the last close – Buy.

ASTL – LPS to clock in at PkR1.03/sh in 2QFY23: Amreli Steels Limited is scheduled to announce its 2QFY23 result next Friday, where we expect the company to record LAT of PkR307mn (LPS: PkR1.03), down by 250%QoQ vs NPAT of PkR204mn (EPS: PkR0.7) in the previous quarter. The decline in earnings is majorly due to the volatile raw material situation across the entire sector, where-in the country’s steel imports hit a 5-year low with the import of scrap steel remaining down by 32%YoY, exhibiting the muted level of activity in the construction sector. Assuming flattish long-steel offtakes on a quarter-on-quarter basis, although down 48%YoY, gross margins are expected to clock in at 12.1% vs. 16.2% in the quarter before amid scarcity of raw materials and rampant demurrage charges during the period.

Finally, higher finance costs (up by 110%YoY for the quarter) are likely to pressure the bottom line as company’s total debt as of 1QFY23 stood at PkR23bn (up by PkR4.3bn vs. June’22). The company currently trades at a forward P/E of 3.5x while our TP of PkR30/sh provides an upside of 60% from the last close. However, from the perspective of capital market, we advise investors to remain wary of new positions in the steel/engineering sector due to the cyclical nature of the business and the prevalent economic situation in the country.