PACRA maintains the rating of Mughal Iron & Steel Industries Limited | PP Sukuk

Mughal is a known name in the steel industry. The Company’s business profile has sustained and improved, over the last few years. The governance framework is strengthened by the presence of independent oversight on the board. The Company has a diversified product slate as its operating both in ferrous & non-ferrous segments. The ferrous segment comprises Billets, Rebars & Girders while the non-ferrous segment comprises Copper ingots mainly. Furthermore, the establishment of strong brands like ‘Mughal Supreme’ gives a competitive edge to the Company. The ratings incorporate the essence of material advancement that Mughal achieved in terms of further diversityin revenue streams. The Company reported a turnover of ~PKR 31.2bln during the 6MFY23(6MFY22: ~PKR 32bln) and has attained a bottom line of ~PKR 1.34bln in 6MFY23(6MFY22: ~PKR 3.5bln). The decline in profitability is attributable to PKR depreciation and increased commodity prices and finance cost. The overall debt of the Company has been witnessing an increasing trend on account of ongoing expansions and supplementary cushion for the shortcomings of working capital, due to which short-term borrowing contributed a significant portion to the total debt. While the Company is also planning to finance its short-term working capital needs through the issuance of unsecured commercial papers. However, comfort can be drawn from a strong equity base of PKR 20.8 billion driven by healthy profits.
The ratings are dependent upon the Company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remains important. Moreover, upholding of governance framework is vital.

About the Entity
Mughal Iron & Steel Industries Limited (Mughal), is a public limited company incorporated in 2010 and is primarily engaged in the manufacturing and sale of billets, girders, and rebars. The Company has expanded its product base, by entering the non-ferrous segment. Mughal operates with a melting capacity of 500,000 M.T, rerolling capacity of 630,000M.T and non-ferrous melting capacity of 10,000M.T. Currently, a nine-member BoD is monitoring the overall functioning underthe chairmanship of Mr. Mirza Javed Iqbal. Mr. Khurram Javaid is the execution lead as CEO and the driving force behind the Company.

About the Instrument
Mughal issued ‘Listed, Secured & Privately Placed Long Term Islamic Certificates (Sukuk) of PKR 3bln in Mar-21. The tenor of Sukuk is 5 years (inclusive 12 months grace period). Sukuk is priced at 3MK+1.3% p.a. with profit payable quarterly in arrears on the outstanding principal amount. Security Structure is first pari-passu hypothecation charge over-all present and future movable assets with a margin of 25% (in accordance to the Issue amount). Sukuk has also been upgraded to a pari-passu charge from ranking charge within a period of 120 days from final disbursement date. Besides the conventional security structure, a debt payment account (DPA) is being maintained with agent bank. One-third of the installment (principal plus profit) is being built up each month by 25th day such that entire upcoming installment is deposited in DPA by 15th day of 3rd month.