REP-081

Rating Company Date

MUGHAL IRON & STEEL

6th Dec, 2021
BUY
Sector INDUSTRIES Perspective
Engineering Price Target
Bloomberg PSX Reuters
PKR 155/share 70% Upside
MUGHAL.PA MUGHAL MUGHAL.KA

Non – Ferrous operations at significant discount!

The global surge in EV production coupled with disruption in mining operations Ali Shah Malik AC
Analyst
has lead copper prices to shoot up from ~USD 7,000/t to ~ USD 9,300/t increasing Ali.shah@msltrade.com
33% y/y. This phenomena has played a vital role in the rerating of various copper 0304-111-(MSL)-5

and other base metal supply chain participants globally. Mughal steel is one of
the largest exporter of copper ingots to China that imports compressor scrap, mix
motor scrap and electric motor scrap from USA. These scrap types have different Key Data
copper extraction yields. Mughal extracts raw copper from the sourced raw Market Cap (PKR mn) 30,250.69
materials and manufactures refined copper ingots to export into China. Mughal Price (3-Dec-2021) 90.13
steel is able to charge premium on the exports of its copper ingot supplies as 52-Week Range 64.79 - 120.17
compared to other local exporters as its major customer is ‘Hong Kong Maytime Shares Outstanding (mn) 335.63
International Industry Ltd.’ which is a state owned enterprise and a direct Free Float (mn shares) 83.91
Source; PSX, MSL Research
supplier to several EV manufacturers including - Das Autos/Volkswagen.

Growing Non-ferrous contribution to total revenues

The contribution of the non-ferrous sales to the total revenues grew exponentially in Price Performance
previous two years. During the experimental phase Mughal iron supplied its first 100% KSE100 Mughal
consignment of around ~50 tons worth of copper ingots to China in FY19. Sooner the 80%
60%
company reaped prime customers on board and the supplies multiplied to ~500 tons in
40%
1QFY21. The recent quarter reported a total tonnage sales of approximately ~1.7k tons of 20%
copper sales which accounts for ~20% of the total sales and depicts a hefty growth of ~285% 0%

y/y. We expect the total contribution of the non ferrous division to grow to ~25% by the -20%

Jul-21
Dec-20

Apr-21

Nov-21
Dec-21
Jan-21
Feb-21

May-21
Jun-21

Sep-21
Mar-21

Oct-21
Aug-21
end of this financial year. Since the company has indicated that it is targeting to diversify its
non-ferrous portfolio and add other base metals in it, we expect the contribution from non- Source: PSX, MSL Research

ferrous division to increase significantly.

Demand of non-ferrous products and Electric Vehicles (EV)

EV Demand Vs. Copper Production
The shift from combustion engine to EV has lead copper demand to peak and this demand 150%
Growth in EV Production
is not expected to subside anytime soon. The supply from copper mines is lagging behind as Growth in Copper Production
100%
the largest copper supplier-Chile has imposed heavy taxes on mining operations owing to
50%
environmental regulations. This shortage has lead EV manufacturers to shift towards
0%
recycled copper for their production needs. China, the biggest market for electric vehicles
restricted the import of foreign scrap in January 2021, hence its EV producers have to rely -50%
2013

2014

2015

2016

2017

2018

2019

2020

2021F

on recyclers in other countries for its copper requirements. Malaysia, China’s biggest
supplier of copper ingots has also threatened to stop the imports of recyclable scrap Source: USGS, MSL Research

causing further trouble to source the materials. We expect the prices of various base metals
(i.e. copper, zinc, aluminum) to remain heated for another year that are used in EV
components.
www.jamapunji.pk
Head Office: Room # 504-505, 5th Floor | Emerald You may also visit our page on Bloomberg
Mall | Clifton Block 5 | Karachi - 74000 | Pakistan MULT <go>
| Contact : +9221-35147504-05

Mughal Iron & Steel Industries | Ticker: MUGHAL.KA (Reuters) | MUGHAL.PA (Bloomberg) | MUGHAL (PSX)
www.multilinesecurities.com | research@msltrade.com
 Investment Case

Investment Case & Valuation

We deduce that the non-ferrous division of MUGHAL operates at a significant discount in comparison to
other global players that are part of the EV supply chain. We have incorporated an increase in non ferrous
contribution to ~25% in FY22 revenues. We foresee that the company is going to further strengthen its non
ferrous segment by diversifying the product portfolio and adding more products to the existing range.

The non ferrous division is currently trading at a P/Sx multiple of 0.39x – FY22. We have assigned a P/Sx
multiple of 1.2x to the non-ferrous division to arrive at a value of PKR 71/share for that segment alone
(*Table. 1.2). We revise our investment case on MUGHAL maintaining an ‘Over-weight’ stance, our (DCF-
P/Ex Blend Based) target price of PKR 155/sh offers an upside potential of 70% from the current price
levels with a dividend yield of 5%.

Risks to our investment case include:

1. Severe volatility in International Scrap/Compressor Scrap Prices.
2. Economic shock disrupting the current demand
3. Rapid rise in sub-standard players in the rebar market
4. Declining copper prices below USD 8,000/ton
5. Removal of regulatory duty on Imported Re-bars.

Types of Motors Used in EVs Mughal Non Ferrous - Segment Valuation * Table 1.2

1. Brushless DC Motor a Total Revenue FY22e 79,000

2. Permanent Magnet Synchronous Motor b Non Ferrous - Revenue FY22e 19,741
3. AC Induction Motor c Contribution of Non-Ferrous 25% (b / c)
4. Interior Permanent Magnet Motor
5. Permanent Magnet Switched Reluctance Motor d Current Market Value/sh 92
Source: MSL Research e # of Shares O/s (mn) 336
f Current Market Cap. 30,878 (d x e)
P/Sx of Global Copper Recyclers g Non Ferrous Market Cap. 7,716 (f x c)
Central Asia Metals 1.28 h Non Ferrous Market Value/sh 23 (g / e)
Yechiu Metal Recycling 1.82 i Non Ferrous - P/Sx (Fwd) 0.39 (g / b)
SMT Scharf 1.47
Heng Huat Resources Group 1.28 j Re-rating Non Ferrous (P/Sx) 1.2
Source: MSL Research
k Contribution to Total Market Cap. 23,690 (j x b)
l Non Ferrous Value/sh 71 (k / e)
Best Conductors of Electricity m Total Value/sh 140 (d - h) + l
1. Silver Source: MSL Research
2. Copper
3. Gold
4. Aluminum Exporter Importer Unit Price/KG
5. Zinc
Mughal Iron & Steel Industries ltd. Hongkong Maytime Int. Ind. Ltd. $ 9.45
6. Nickel
7. Brass Bin Tariq Impex Greenland Trading Pvt. Ltd. $ 9.41
8. Bronze Copper World Tsr Metals Gmbh And Co.Kg $ 9.05
9. Iron
10. Platinum Intermarket International Lucky Recycling Ltd $ 9.00
Source: MSL Research Source: MSL Research

Our Reports are available on

Bloomberg | S&P Capital IQ | Reuters

Head Office: Room # 504-505, 5th Floor | Emerald You may also visit our page on Bloomberg
Mall | Clifton Block 5 | Karachi - 74000 | Pakistan MULT <go>
| Contact : +9221-35147504-05

Mughal Iron & Steel Industries | Ticker: MUGHAL.KA (Reuters) | MUGHAL.PA (Bloomberg) | MUGHAL (PSX)
www.multilinesecurities.com | research@msltrade.com
 Disclaimer
This report has been prepared by Multiline Research (Pvt.) Limited and is provided for information
purposes only. Under no circumstances, should this be used or considered as an offer to sell or solicitation
of any offer to buy. While reasonable care has been taken to ensure that the information contained herein
is not untrue or misleading at the time of publication, we make no representation as to its accuracy or
completeness and it should not be relied upon as such. This report is provided only for the information of
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Furthermore, in accordance with clause 8(2) sub- clause (i) of RAR 2015, we currently do not have any
financial interest associated in the subject security aggregating more than 1% of the value of the company.

Valuation Methodology
To arrive at our 12-months Price Target, Multiline Research uses multiple valuation methods which include:
1). DCF methodology, 2). Relative valuation methodology and 3). Asset-based valuation methodology.

Rating Expected Total Return

Buy Greater than 15%
Hold Neither Buy nor Sell
Sell Less than and equal to -5%

Risk Rating Parameters

High β > 1
Medium β = 1
Low β < 1

Ratings are updated to account for any development impacting the economy/sector/company, changes in
analysts’ assumptions or a combination of these factors.

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in a timely manner through either physical or electronic distribution such as email, fax mail etc.

Analyst Certification
MSL Research, primarily involved in the preparation of this report, certifies that (1) the views expressed in
this report accurately reflect the researcher’s personal views about the subject company/stock /sector and
(2) no part of researcher’s compensation was, is or will be directly or indirectly related to the specific
recommendations or views expressed in this report.

Our Reports are available on

Bloomberg | S&P Capital IQ | Reuters

Head Office: Room # 504-505, 5th Floor | Emerald You may also visit our page on Bloomberg
Mall | Clifton Block 5 | Karachi - 74000 | Pakistan MULT <go>
| Contact : +9221-35147504-05

Mughal Iron & Steel Industries | Ticker: MUGHAL.KA (Reuters) | MUGHAL.PA (Bloomberg) | MUGHAL (PSX)
www.multilinesecurities.com | research@msltrade.com