The year 2015 saw multiple IPO offerings in the country, and one of those was IPO of Mughal Iron and Steel Industries. The excitement in the market was quite evident from the get-go. For once, the market was seeing not one, but two steel giants of the country offered the IPO.
Mughal planned to utilise the proceeds to acquire 7.5 MW induction furnaces, replacing, maintaining and reconditioning the manufacturing facilities it has. The company also wants to use the proceeds for the acquisition of induction furnace and BMR of the re-rolling mill.
The IPO of Mughal as expected was oversubscribed by over three times in the book-building process, and that happened in a matter of minutes. This shows the immense desire and interest of people to get their hands wet with the fortunes as the company offered a band in the range of Rs 20-34, and the investors offered a bid of Rs 34 per share.
The issue has consisted of 27.35 million ordinary shares, representing 25 percent of post issued paid-up capital. However, the general public was being offered 6.83 million shares or 25 percent of the issue at a premium of Rs 24 to the face value.
Company Profile:
Mughal Iron & Steel Industries Limited ("MISIL") is one of the leading businesses in Pakistan in the iron and steel sector. The company was incepted in early 1950 in the form of a proprietorship firm, and the business was incorporated in 2010.
The company is actively involved in multidimensional activities from making billets of Mild Steel, Spring Steel, Deformed bar, Re-bar, Cold Twisted Rebar and an enormous range of Sections such as I. Beams, L. Sections, C. Sections, H. Beams, T. Bars in the downstream industry.
Over the years, Mughal Steel has emerged as a serious player in the industry and rather quickly transforms itself into a strong contender in the iron and steel sector to become the largest manufacturer of long rolled iron and steel products in Pakistan. The firm is an export-oriented entity with the strong market presence in the neighbouring country, Afghanistan.
The Capacity of the Company:
To expand its capacity, Mughal Steel took over plant and machinery from Al-Bashir Steel Industries in 2008. It also installed an additional mini-sectional mill. After being incorporated, it added bar re-rolling capacity of 150,000 MT. Again in 2011, it added 300,000 MT of production capacity. In 2014, Mughal installed a couple of new induction furnaces of 7.5MW and 6MW. At the same time to improve its efficiency, it introduced a continuous casting machine (CCM).
As per the firm's 2015 annual report, Mughal Steel is the country's largest long-rolled steel producer with approximate annual production capacity, in an average year, of 366,000 tones for melting and 688,000 tones for re-rolling. However, as per market information since past couple of years Mughal has been operating at a low capacity of around 20 percent. Even though the company is a major player in the industry, it has faced competition due to higher imports and the ongoing power crisis and gas outages in the country.
Financial performance before IPO:
The company has kept its financials well over the years. Since FY11-14, Mughal has shown significant CAGR of 110 percent regarding its profit after tax. The revenues have grown at an average annual rate of 25 percent with profits rising by over nine times in the last four years, which is quite outstanding. Mughal has enhanced its efficiency especially in FY14, which has helped improve the gross margins to 12 percent - up by 28 bps year-on-year against the margin of 10 percent in FY13 despite increased in power tariffs during the financial year.
Financial performance in FY15:
Mughal Iron & Steel Industries Limited first annual report after their going public is quite pleasant. The company has achieved its highest ever turnover amounting to Rs 12.24 billion from Rs 5.97 billion, showing a sharp increase of 105 percent. Mughal has received ample help from the growing construction activity in the private and public sectors as a result of higher utilisation of funds released for Public Sector Development Programme. The sales revenue came on the back of an increase in sales of steel bars and local sales of girder and tee iron. But, the exports showed an unimpressive performance due to lacklustre demand dragged down by declining Afghanistan exports.
The iron and steel company saw its distribution cost increase quite significantly mainly due to related freight expenses incurred on local sales. At the same time, the financial charges remained within limits mainly because of lower interest rates, and improved cash management. During the period, the company has paid off Rs 189.749 million of long-term financing from banking companies.
The Six Month Snapshot:
For the first half of financial year, Mughal has kept its growth momentum on fire. The iron and steel company has reported top line growth of 78 percent year-on-year despite the fact that the steel prices have declined, and the government has imposed the regulatory duty on raw material. The top line for the period was achieved with the backdrop of higher demand for bar and by an increase in local sales of Girder and Tee iron. But, Mughal is still facing a tough time in exports. The enormous increase in the top line has helped the company to report 96 percent year-on-year increase in the bottom line.
During the period under discussion, the firm has witnessed improvement in power supply, the decline in material prices and declining oil prices to facilitate better production and margins.
Future Outlook:
The future of Mughal is indeed ravishing due to various reasons. First, with the CPEC projects on board the steel industry is expecting higher demand, and Mughal is at the right spot with its greater capacity to grab this opportunity. CPEC is a blessing for Mughal because it has very diversified product portfolio and has the advantage of its location. Secondly, recently it has introduced new product 'Mughal Supreme' to pave the way for entry into the retail segment. On the other hand, Mughal is trying to increase its grid's load capacity and have started to focus on in-house power production. All these factors would certainly help the company towards a brighter future.