03 34 11 - MSL Intel - Mughal Initiation - Capitalizing On The Global Base Metal Fiesta

REP-081
Rating Company Date
MUGHAL IRON & STEEL

23rd Aug, 2021
BUY
Sector INDUSTRIES Initiation
Engineering Price Target
Bloomberg PSX Reuters
PKR 172/share 53% Upside
MUGHAL.PA MUGHAL MUGHAL.KA
Capitalizing on the Global Base Metal Fiesta

Taha Rehman AC
MUGHAL’s non-ferrous division hit the ground running post commencement of Analyst
copper ingots manufacturing. The dismal beliefs of the market on the business’ taha@msltrade.com
+92-309-3337930 Ext. 1126
viability actually subsided after 2q’s result where the company posted ~PKR 1.4bn
profit (up by 12.3x y/y) - which was majorly brought by Copper Ingot exports. The
stock rallied nearly 100%y/y as everyone eyed on the smart move by the
management which abruptly turned into reality as the company showed significant Price Performance
upside in gross margins - expanding 5.7pps y/y (9mfy21). Whether it be 120% KSE100 Mughal
100%
diversification of the product portfolio or energy mix, timely commencement of bar 80%
mill expansion or initiation of non-ferrous, Mughal Iron has an astounding record of 60%
surprises. We expect more surprises in the future as the company is well positioned 40%
20%
to capitalize on the rising base metals demand globally. Not only this, we further 0%
expect significant upside in the ferrous too which is all set to surpass the previous -20%
Jul-21
Nov-20
Dec-20
Apr-21
Jan-21
Sep-20
Feb-21
May-21
Jun-21
Aug-20
Oct-20
Mar-21
Aug-21
records owing to largest girder capacity, sizable bar mill, wide dealer network across
Pakistan & changing industry dynamics.
Source; PSX, MSL Research
What we like the most about MUGHAL?

Our Investment Case - At a Glance:
Key Data
Market Cap (PKR mn) 32,582.70
Price (20/08/2021) 111.80
• Long Steel Frenzy – Changing industry dynamics swirling in favor of Mughal! 52-Week Range 58.15 - 124.60
Owing to several factors combined, including 1) Non-viability of Imported Bars (with or Shares Outstanding (mn) 291.80
without anti-dumping/regulatory duty), 2) Subsiding competition from the tor-bars 3) Free Float (mn shares) 72.90
Total Debt/Cap. 72%
Govt. actions on the fiscal side – Fixation of Minimum Value, 4) Changing
Source; PSX, MSL Research
demographics – The Housing shortage, 5) Islamic Mortgage Financing stark growth
has been witnessed in the long profiles market of Pakistan. (Refer. Pg#2)
• Girder – Strength of diversification
Estimates
MUGHAL is the only player in the listed space that distinguishes it from others on
FY 2020A 2021E 2022E
account of its product portfolio diversification. Mughal Iron & Steel Industries Limited
EPS 2.03 12.62 21.15
has approx. ~ 200k tons of girder capacity. (Refer. Pg#6) P/Ex 54.68 8.80 5.25
• The New NCO Bar mill – Prime capacity in the North! P/Sx 1.19 0.73 0.48
Mughal recently announced the commencement of operations of its newly Source; PSX, MSL Research
commissioned Italian bar mill supplied by Nuova Carpenteria Odolese (NCO) taking its
total rebar capacity to 580k tons per annum. The new bar mill incorporates an impact
of around ~PKR 2.9/sh in FY22 with an additional tax saving of ~PKR 3.1/sh on account
of tax credit under 65(e). (Refer. Pg#7)
• Non – Ferrous – There’s more to see!
We expect Mughal to export around 8k tons of copper Ingots (up 45%y/y) in FY22e
which shall add PKR 5.84/sh to the earnings. The company eyes on establishing a
stronger footprint in non – ferrous exports as other base metals are being
experimented too. (Refer. Pg#9)
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
Understanding Pakistan’s Bar Market
A brief on the Industry in a Nutshell – The Challenges!

Pakistan’s long steel market has been through thick and thin since inception. With
around ~350+ rolling mills in Pakistan ruling on maneuvering prices. Wide availability
of the sub-standard re-bars and a sizable quantity of dumped bars had always
impacted the local graded manufacturers in the country. The local re-bar market is
categorized into two product categories 1) Graded and 2) Sub-standard (ungraded).
The widely used standard in our market – Deformed Bar ASTM – 615/706 - G-60 is
supposedly the most premium category available in the rebar market currently. The Did you know?
G-60 struggled through severe discounts as in a market like Pakistan buyers are too That importing re-
price concerned. The availability of tor - bar (sub-standard re-bar manufactured by bars is more
re-rollers using ship-plate billet as an input) at a discount of around PKR 12k – 15k/ expensive than the
current local rebar
ton historically has always disrupted the pricing mechanism of the graded players.
prices today.
Many small re-rollers that have established mills in their respective areas kept eating
market shares of graded manufacturers in the past on account of cheaper rates that
they offered. Since most of the buyers are either builders and contractors
constructing for the third party decide on the price more than tensile or yield
strength of the re-bar which of course is more lucrative to them against quality.
Rebar market was always easy to manipulate by dealers and builders. The graded
steel manufacturers were always too engaged in retaining their market share hence
the selling prices took pressure to the excess supply of the ungraded sector.
Subsiding competition from tor-bars

Until 2018, the total market size of the Pakistan long steel stood around ~5.2million
tons which had a greater contribution of around ~1.5million tons of the Gadani ship
breaking yard. The ship breaking industry was doing well until the economic shocks
of 2018 when many rolling mill owners scrapped their mills and switched to other
businesses. Since, the only feed to the gadani ship breaking industry was the sizable
buying of ship-plates by the re-rolling mills the industry got a hit after several re-
rollers shut down. The dismantling of ships slowed down even further during
covid’19 owing to further reduction in the potential customers – re-rollers. As the
ship breaking industry was subject to higher duties and tariffs in comparison to our
regional peers like Bangladesh, the routing of ships to the region for dismantling
further shrunk as the revenues of the industry started to suffer from 2018. This has
led to a stark declining in the mass availability of tor-bars.
Long Steel Frenzy – Changing industry dynamics swirling in favour!

Owing to several factors combined, {1) Non-viability of Imported Bars (with or
without anti-dumping/regulatory duty), 2) Subsiding competition from the tor-
bars 3) Govt. actions on the Fiscal side – Fixation of Minimum Value, 4) Changing
demographics – The Housing shortage, 5) Islamic Mortgage Financing – Capitalize
instead of paying rents} stark progress has been witnessed in Pakistan’s long
profiles market. The local ASTM 615/706 – G-60 bar has now become more
preferred amongst the two products. The delta of Tor-bar/G-60 has also withered
over the past 3 years from PKR 12k-14k/ton to PKR 8k-9k/ton as the supply from
ship-breaking industry has shrunk by approx. ~300k tons in the past 2 years. This has
led to a surprising reduction in the competition from the ungraded sector and also
strengthened the pricing power of the G-60 manufacturers.
Our Reports are available on

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International bar prices trading north of USD 850/ton – A seal on Dumping
As a result of US’ development spending and supply shocks post covid’19 global steel
prices skyrocketed in 2020-21. The prices of finished steel products further infuriated as
China became buyer owing to economic stimulus and started hoarding supplies. The Duty Structure Rebar Scrap
International rebar prices rose 175%y/y surging to USD 850/ton (cnf) highest in the past 8 Regulatory Duty % 30% 5%
years. This is a sigh of relief for the local industry as the import of re-bars at the current Additional Customs Duty % 3% 3%
prices is not viable for the importer. The landed cost of the rebar with only 5% customs Customs Duty % 5% 0%
duty assesses around ~PKR 147,000/ton whereas, the local re-bar prices ex sales tax are Source: MSL Research
~PKR 146,000/ton as of today. This marks import of bars highly unlikely.
Awareness on G-60 through campaigns

Over the past several years with overdue efforts through various campaigns done by the
famous long steel manufacturers in Pakistan on the significant quality differential
between tor bar and G-60 (ASTM-615/706) weakly though but has initiated a mild change
amongst the mindset of consumers that invest millions in owning a land and just to save a
few bucks compromise on the reinforcement of their house by installing a sub-standard
bar. This is a century old belief as our ancient houses has tor-bars installed and may take
several years to inculcate the change in the mindset completely.
Government’s actions of the fiscal side – Fixation of minimum value

As the government is taking actions on deleveraging the fiscal encumbrance ensuring
maximum tax collection. Recently, on August 4th 2021 the FBR enhanced the fixation of
minimum value of re-bars/girders and other long profiles at PKR 140,000/ton. The
fixation of minimum value enables a healthy pricing mechanism for the industry as
previously smaller players used to pocket sales tax by declaring lesser selling prices. This
used to disrupt the pricing mechanism of the industry. As now if any player sells below the
minimum value of PKR 163,800/ton will be charged fixed sales tax of PKR 23,800/ton. The
smaller players now lack incentive of curbing the declaration of selling prices below the
fixed value as mentioned in the notice.
International Scrap & Rebar Prices International Rebar Prices & Rebar/Scrap Margins
USD/ton USD/ton
Source: MSL Research Source: MSL Research

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Changing demographics – The Housing shortage
Pakistan’s estimated housing shortage currently rounds off to 10mn units, the deficit is
further infuriating in the urban areas due to high demand on account of changing
demographics and growing trend of nuclear families who seek a separate housing unit
from larger families. The youth is more focused on the quality and the awareness
campaigns done by graded players have gained traction making purchase of bars more
consumer centric instead of builder centric. The investors now interfere on the materials
being used in the house specifically – the reinforcement.
Islamic Mortgage Financing – Better capitalize than paying rents

Housing loan is not a new thing in Pakistan but there has been a barrier earlier as the
financing was conventional and not riba free. The hype of Islamic financing has done
remarkable progress in our country in the past several years. Many families that have
been accustomed to rentals since many years are now understanding the stark difference
of owning an asset instead of incurring huge expenses on a monthly basis in rentals. The
Islamic mortgage finance provides ease on this aspect that the monthly installments paid
is actually adding up to owning an asset down the road, and the money is not going in
vain.
10Mn Units 0.4-0.7Mn Units 0.1-0.4Mn Units

Existing shortfall in housing units Current annual demand for Current annual production of housing units
housing units
~0.4Mn Units
Emergence of ‘ruralo-pilises’ as an extension Average increase in backlog per
Growing trend of nuclear families who seek
to urban housing areas as urban areas annum
housing separate from larger families.
become densely populated

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Investment Case
Valuation
MUGHAL’s currently trading at a P/Ex multiple of 5.3x/4.6x/4.3x – FY22/FY23/FY24. Our DCF based intrinsic
value clocks at PKR 174/sh, however we have used a blend of Relative Valuation (P/Ex) and Discounted
Cash Flows (DCF) to arrive at our Price Target of PKR 172/sh. We initiate our coverage on MUGHAL
recommending an ‘Over-weight’ stance, our target price offers an upside potential of 53% from the current
price levels with a dividend yield of 4%.
Our June’22 Valuation is a blend of P/Ex and DCF, assigning equal weights to either methodologies. We
have assigned a higher multiple of growth to the company while valuing on P/Ex. (Refer Pg#12)
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.
Profit & Loss Snapshot

PKR (mn) FY19 FY20 FY21E FY22E FY23E FY24E
Net Sales 30,828 27,305 44,397 67,500 71,333 79,036
Gross Profit 3,189 2,617 6,857 10,500 11,667 12,162
Operating Profit 2,524 2,069 5,648 9,223 10,263 10,697
PBT 1,737 554 4,309 7,474 8,584 9,011
PAT 1,373 593 3,683 6,173 7,090 7,443
EPS 4.70 2.03 12.62 21.15 24.29 25.50
Source: MSL Research

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Investment Case
Girder – Strength of diversification

MUGHAL is the only player in the listed space that distinguishes it from others on account of its product
portfolio diversification. Mughal Iron & Steel Industries Limited has approx. ~ 200k tons of girder capacity.
Girder is used for reinforcement in the rural/suburban Punjab and Sindh. The product has done wonders for
the company in the past too when during economic downturn in 2018-19, swirling cost of production due to
currency devaluation made it difficult for the G-60 producers to pass on the impact to end consumers. The
product mix with 60:40 ratio of bars/girders saved the day for the company as demand for girders remained
stable in comparison to bars. The girder market is relatively less fragmented in comparison to the rebar
market with only a few key players in the industry including Mughal Iron, Shalimar, New Shalimar, Batala
and Ittefaq. The total market size sums to around ~1 million tons per annum. The recent industry insights
indicate supply shocks in the girder market as two key players are currently non-operational due to internal
issues.
Unlike deformed bars i.e. ASTM-615/706 – G60, girder is a substandard product and is ungraded. However,
surprisingly since one and half years or so girder rates have surpassed re-bar rates maintaining an average
premium of around ~2k-3k per ton. The market for girders has further grown owing to better farm economics
this year whereas the supply remained the same as no significant capacity expansions were seen in this long
profile in the recent past. Hence, the price premium for girder over bar in the recent few months went north
of PKR 6k-7k/ton. This is important to mention here that deformed bars G-60 historically have traded at a
premium of PKR 3k-4k/ton from girders. MUGHAL – recently announced debottlenecking of its girder mill
incurring a capex of around PKR 620million. This will not only improve the quality of the product but will
also enable optimal utilization of the mill. The total output for the girder mill now surges to ~ 200k tons per
annum. The company enjoys the competitive edge within the product as Mughal Iron’s brand has positioned
itself well for the product and the product sells like hot cakes in badami bagh (largest steel market in Punjab)
along with other several long profiles such as t-iron/channels/angles which are manufactured by a sister
concern ‘Mughal Manufacturing Modarba’.
The beauty of this long profile is that it doesn’t tie up company’s receivables as its cash based having an
operating cycle of merely 4 to 5 days. Our FY22e earnings have an impact of around PKR 5.59/sh that’s been
charging from the girder sales.
(Tons) (Tons)

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Investment Case
The New NCO Bar mill – Prime capacity in the North!

Mughal recently announced the commencement of operations of its newly
commissioned Italian bar mill supplied by Nuova Carpenteria Odolese (NCO) taking its
total rebar capacity to 580k tons per annum. The timing of the COD couldn’t have been
Did you know?
any better as the demand has spurred in favour of the industry with Punjab spinning for
That 65(e) coud
absorption. As north remains the hub for demand owing to development activities, public save up to PKR
spending and housing schemes in the region several southern producers including Amreli, 3.1/sh in
Naveena and Agha are eyeing on the region too. Mughal’s FY22
P&L.
Mughal resides in the perfect habitation to benefit from the rising demand whereas the
southern players are at a disadvantage to take supplies up north paying extra distribution
charges. Not only this, the brand name of Mughal itself marks a notion that it won’t be
easy for the southern players to penetrate in the market without bearing the cost of
dealer discounts that may be needed to offer for shelving the products. The bar mill
expansion incorporates an additional impact of around ~PKR 2.9/sh in FY22.
The new bar mill is subject to tax credit under Section 65 – sub section (e) as the project
is 90% equity financed. In accordance to the tax credit available via 65(e) 90% of the tax Did you know?
liability created on account of sales from the new bar mill will be subject to no corporate That Mughal’s
tax charged. We expect ~PKR 3.1/sh saving as an impact of 65(e) in FY22e. re-bar ‘Mughal
Supreme’ has
better yield
strength (kpsi)
Bar standards and properties than g-60.
Tensile
Yield Strength Corrosion
Name Origin Strength
Resistance
(psi/lbs) (psi/lbs)
Ungraded Unknown 25,000 40,000 Very Low
TOR Steel BS 1977 60,000 68,000 Very Low
G-40 ASTM A 615 40,000 60,000 Moderate
G-60 ASTM A 615 60,000 90,000 High
Supreme ASTM/BS 72,000 88,000 Very High Yield strength of a
Source: MSL Research PSI* = Pounds per square inch bar is the most
important
characteristic which
assesses the
maximum stress a
re-bar can take
before its shape
begins to change
permanently.

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Pak – Afghan Relation – An upside trigger
Mughal Iron is the only company in the listed space that has a history of exporting girders
to Afghanistan in 2012-13. After recent turmoil in Afghanistan, the news flow has finally Did you know?
started to turn slightly positive. The Taliban in one go have reduced customs duty on 159 That Mughal used
tariff lines that include steel. We expect that it’s beneficial for Mughal more than any to export PKR 3bn
other steel player as the company has pre-established supply lines with the clientele in worth of Girders to
Afghanistan. Since the company in now fully equipped with a higher bar capacity, the Afghanistan back
in 2012-13.
company can potentially export “Mughal Supreme & G-60” to the region too. This further
strengthens our investment case and may be a volumetric kicker in FY22-23.
Railway carriage – An added benefit of PKR 1.5k/ton in transporting scrap via railway
Being a northern player the company has to manage its scrap shipments and carrying
them up north. The company earlier used to carry via Lorries that were subject to higher
freight costs of around ~PKR 3,500-4000/ton. Mughal now manages around ~50% to 60%
of its total raw material inland transportation through railway. This saves around ~PKR
1.5k/ton versus transportation through Lorries. The savings from transporting coal via
railway rounds off to PKR 900/ton, providing an after tax impact of approx. ~ 0.68/sh.
It’s worth mentioning here that Mughal can easily penetrate into South with no
additional cost of freight as the carriage returns empty to Karachi.
Best energy blend – Mughal Energy Limited to add further cost efficiencies Did you know?
Mughal is the only long steel player in the listed space that has its in-house power That now manages
generation i.e. 9 gas fired power engine of 3.1MW each. The company uses them often around ~60% to 70% of
its total raw material
ensuring the availability of supply of gas. MUGHAL has also hooked additional load inland transportation
sanctioned of about 90MW warranting smooth operations of its production facility. The through railway. This
total energy requirement of the company if operates at full capacity is ~ 118MW (at 780k saves around ~PKR
tons of production – inclusive of girder mill) the current energy blend suffices even if the 1.5k/ton versus
company operates at optimal capacity utilization today. transportation through
Lorries.
(It is further anticipated that Mughal may add more furnaces sooner to it’s existing melt-
shop as the company has finally upgraded it’s bar capacity)
The sponsors of Mughal Iron have invested in a coal fired captive power plant of 55MW.
A separate legal entity is formed in this regard naming ‘Mughal Energy Limited’. We
expect Mughal Energy to commence commercial operations from FY23. We further
expect Mughal Iron to benefit from MEL in regards of around ~PKR 1/kwh discount as a
sister concern of MEL. This adds to PKR 0.84/sh after tax savings to our earnings of
FY23e.

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Non – Ferrous
Non – Ferrous – There’s more to see!
Global base metal prices remained northbound the complete fiscal year 2021, where
copper emerged as the best performer amongst all base metals peaking USD
10,120/ton (June’2021) surging 78%YoY from USD 5,700/ton (June’2020). Post Covid19
as economies reopened, the supply of many commodities couldn’t keep up-to the pace Did you know?
That there are other
of the pent-up demand that spurred initially. In copper it was quite different.
several players in the
Cumulatively, due to lesser mining the previous year the supply remained mild whereas recycled base metal
many countries jogged on the Electric Vehicle (EV) Policy hoarding copper and exports in Pakistan.
aluminum supplies. This spiked a great rally in the international copper prices and also
an opportunity to many metallurgy giants across the globe.
Pakistan had already been exporting copper in various forms to China. Whether it be
Unrefined Blocks of Copper or Refined Copper Ingots – the market consists of several
traders; naming a few (1) SLC Metal & Refining Private Limited, (2) Susan
International, (3) AA Enterprises, (4) Bin Tariq Impex, and (5) The Metal Co that’s Mughal eyes on
establishing a
been recycling assorted wires and supplying copper in several forms catering and stronger footprint in
contributing to the exports of Pakistan. non-ferrous. The
company is currently
Mughal Iron & Steel Industries eyed on the rising copper prices and the opportunity to working on various
pocket from expanding its existing product portfolio introducing a ‘Base Metal’ and also base metals. Small
quantities of
for establishing a Non-Ferrous Division. The timing couldn’t have been any perfect as
aluminum have been
the company stockpiled its first ever supplies of compressor scrap from USA at USD experimented via toll
490/ton to experiment its Phase 1 of the Non-Ferrous Segment. The company may manufacturing and
close the current fiscal year with total exports of approx. ~5,500 tons. We expect the contribution
currently is
Mughal to export around 8,000 tons of copper Ingots in FY22e which shall add ~PKR immaterial.
11.4 billion to the total revenues of the company and PKR 5.84/sh to the earnings.
Copper Ingots Monthly Exports Shrinking Delta from LME Copper Spot/ton
(Tons) $/ton (Tons) $/ton

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Understanding the recycling process – Inputs for recovery of Copper Extraction
Mughal Iron imports several sorts of scraps including 1) Compressor Scrap, 2) Mix
Did you know?
motor scrap, and 3) Electric motor scrap which are used as an input for recovery of
That Mughal uses
copper extraction. Each source yields refined or unrefined copper whereas several sorts of scrap
extraction yields % across each type varies. A general extraction yield with the mix types other than
of all the types could be assumed as 70kg/per ton of the mentioned scrap type compressor scrap for
recovery of copper
used. Currently, the mix of the compressor and electric motor scrap trades at USD extraction.
750-800/ton. We have assumed compressor scrap purchases of ~USD 750/ton and
Copper Ingot Sales at USD 8,500/ton in our model for FY22.
Segment Analysis Mix of inputs for Copper extraction recovery

FY22e
PKR (mn) Ferrous Non- Ferrous Consolidated
Sales 48,177 19,323 67,500
Cost of Sales 40,470 16,530 57,000 24%
Gross Profit 7,707 2,793 10,500
Operating Expenses 1,089 246 1,334 53%
Operating Profit 6,676 2,547 9,223 23%
Profit before taxation 5,410 2,064 7,474
Taxation 1,300
Tax Rate % 17%
Profit after taxation 6,173
Compressor Scrap Electric Motor Scrap Mix Motor Scrap
EPS 21.2

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Sensitivity Analysis
Sensitivity Analysis – Scrap Price Assumptions PKR/Sh

EPS
Scrap PT FY22 FY23 FY24
(-) 20%/Year 215 29.05 32.19 34.99
(-) 10%/Year 197 25.51 28.63 30.71
Base Case 174 21.15 24.29 25.5
(+) 10%/Year 150 16.44 19.56 19.82
(+) 20%/Year 125 11.72 14.83 14.14
Base Case Prices USD/Ton 400 338 338

Sensitivity Analysis – Copper Price Assumptions PKR/Sh

EPS
Copper PT FY22 FY23 FY24
(-) 20%/Year 152 16.4 19.19 20.29
(-) 10%/Year 162 18.56 21.57 22.61
Base Case 174 21.15 24.29 25.5
(+) 10%/Year 188 24 27.29 28.69
(+) 20%/Year 201 26.86 30.3 31.88
Base Case Prices USD/Ton 8500 8000 8000


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Financial Projections
Profit & Loss FY19 FY20 FY21E FY22E FY23E FY24E

Net Sales 30,828 27,305 44,397 67,500 71,333 79,036
Cost Of Sales 27,639 24,688 37,541 57,000 59,666 66,874
GP 3,189 2,617 6,857 10,500 11,667 12,162
GP Margins % 10.3% 9.6% 15.4% 15.6% 16.4% 15.4%
Distribution Expense 202 144 287 335 357 393
Admin. Expenses 367 407 553 532 567 608
Other Income 30 59 80 57 53 96
Other Expenses 123 53 449 467 534 560
EBIT 2,524 2,069 5,648 9,223 10,263 10,697
EBITDA 2,675 2,251 5,956 9,535 10,579 11,015
Finance Cost 786 1,515 1,339 1,749 1,679 1,686
PBT 1,737 554 4,309 7,474 8,584 9,011

Taxation 364 (39) 627 1,300 1,494 1,568
Tax Rate % 21% -7% 15% 17% 17% 17%
PAT 1,373 593 3,683 6,173 7,090 7,443
EPS 4.70 2.03 12.62 21.15 24.29 25.50
90,000 80% 30,000 GP/ton GP Margins % 18%

Net Sales Revenue Growth
80,000 70%
16%
60% 25,000
70,000 14%
50%
60,000 20,000 12%
40%
50,000 10%
30% 15,000
40,000 8%
20%
30,000 10,000 6%
10%
20,000 0% 4%
5,000
10,000 -10% 2%
- -20% - 0%
2019
2020
2021
2022
2023
2024
2019
2020
2021
2022
2023
2024

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Valuation
Free Cash Flow to Firm (FCFF) FY21E FY22E FY23E FY24E

CFO (2,064) 596 5,603 7,261
Add: Interest (1-tax rate) 978 1,193 1,146 1,150
Less: Fixed Capital Investment (482) (459) (451) (438)
FCFF Weighted Valuation for Price Target

Discounted 11,658 (PKR/sh) June'22 Wieghts% Value
Terminal growth rate (Real GDP %) 3.0% Intrinsic Value (DFC Value) 174 50% 87
Terminal Value 82,917 P/Ex Value 169 50% 85
Discounted terminal value 57,612 Price Target 172
Target Debt/Equity 40% Current Price 112
Interest rate Upside Potential % 53%
Kibor 6M (Target) 9% Source: MSL Research
Spread 1%
Loan rate 10%
Tax rate 17%
WACC 13%
Cost of Equity 16%
Risk Free rate 10%
Risk premium 6%
Stock Beta 1.0
Total value 69,270

Debt 18,526
Equity Value 50,744
Value per share 174
# of O/S Shares 292

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Team
Muhammad Hanif Muhammad Aamir Madraswala

Chief Executive Officer Director/ Chief Operating Officer
Taha Rehman Muhmmad Aitazaz Farooqi, CFA

Head Of Investments & Strategy Head Of Research
+92-309-3337930 Ext. 1126 +92-309-3337931 Ext. 1129
taha@msltrade.com aitazaz@msltrade.com
Ali Shah Malik Muhammad Saqib

Investment Analyst Investment Analyst
ali.shah@msltrade.com m.saqib@msltrade.com
Abdullah Jamal Khan Naeem Ilyas

Research Associate Research Assistant
abdullah@msltrade.com naeem@msltrade.com
Safdar Ali Sarani Shahzad Ullah

Head Of Sales Equity Trader
+92-309-3337919 Ext. 1122 +92-309-3337928 Ext. 1124
safdar@msltrade.com shahzad@msltrade.com

| Contact : +9221-35147504-05
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
professional advisers who are expected to make their own investment decisions without undue reliance on
this report. Investments in capital markets are subject to market risk and Multiline Research accepts no
responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or
its contents. In particular, the report takes no account of the investment objectives, financial situation and
particular needs of investors, who should seek further professional advice or rely upon their own judgment
and acumen before making any investment. The views expressed in this report are of the Research
Department and do not necessarily reflect those of the company or its directors. All rights reserved by
Multiline Research (Private) Limited. This report or any portion hereof may not be reproduced, distributed
or published by any person for any purpose whatsoever. Nor can it be sent to a third party without prior
consent of Multiline Research. Action could be taken for unauthorized reproduction, distribution or
publication.
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.
Research Dissemination Policy

Multiline Research endeavours to make all reasonable efforts to disseminate research to all eligible clients
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.

| Contact : +9221-35147504-05

03 34 11 - MSL Intel - Mughal Initiation - Capitalizing On The Global Base Metal Fiesta

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03 34 11 - MSL Intel - Mughal Initiation - Capitalizing On The Global Base Metal Fiesta

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REP-081

Rating Company Date

MUGHAL IRON & STEEL

Capitalizing on the Global Base Metal Fiesta

What we like the most about MUGHAL?

A brief on the Industry in a Nutshell – The Challenges!

Subsiding competition from tor-bars

Long Steel Frenzy – Changing industry dynamics swirling in favour!

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~PKR 146,000/ton as of today. This marks import of bars highly unlikely.

Awareness on G-60 through campaigns

Government’s actions of the fiscal side – Fixation of minimum value

Source: MSL Research Source: MSL Research

Islamic Mortgage Financing – Better capitalize than paying rents

10Mn Units 0.4-0.7Mn Units 0.1-0.4Mn Units

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Risks to our investment case include:

Profit & Loss Snapshot

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Girder – Strength of diversification

Source: MSL Research Source: MSL Research

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The New NCO Bar mill – Prime capacity in the North!

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Non – Ferrous – There’s more to see!

Source: MSL Research Source: MSL Research

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Segment Analysis Mix of inputs for Copper extraction recovery

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Sensitivity Analysis – Scrap Price Assumptions PKR/Sh

Base Case Prices USD/Ton 400 338 338

Sensitivity Analysis – Copper Price Assumptions PKR/Sh

Base Case Prices USD/Ton 8500 8000 8000

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Profit & Loss FY19 FY20 FY21E FY22E FY23E FY24E

PBT 1,737 554 4,309 7,474 8,584 9,011

90,000 80% 30,000 GP/ton GP Margins % 18%

Source: MSL Research Source: MSL Research

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Free Cash Flow to Firm (FCFF) FY21E FY22E FY23E FY24E

FCFF Weighted Valuation for Price Target

Total value 69,270

Source: MSL Research

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Muhammad Hanif Muhammad Aamir Madraswala

Taha Rehman Muhmmad Aitazaz Farooqi, CFA

Ali Shah Malik Muhammad Saqib

Abdullah Jamal Khan Naeem Ilyas

Safdar Ali Sarani Shahzad Ullah

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Rating Expected Total Return

Risk Rating Parameters

Research Dissemination Policy

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