The Pakistan Credit Rating Agency Limited
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Usama Zubair

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PACRA Assigns Preliminary Rating to Mughal Iron & Steel Industries Limited | PP Sukuk.

Rating Type Debt Instrument
(23-Oct-20 )
Action Preliminary
Long Term A+
Short Term -
Outlook Stable
Rating Watch -

Mughal is a known name in the steel industry. The Company’s business profile has significantly improved, over the last few years. Governance framework strengthened by induction of independent oversight on board. The Company has diversity in its product slate; Rebars, T-Iron and Girders etc. Furthermore, establishment of strong brands like ‘Mughal Supreme’ gives competitive edge to the Company. The company has attained formidable market share by penetrating retail segment. The strategic realignment executed over the last few years by channeling 60% volumes (previous: 10% of sales mix) to retail market has been fruitful. The capacity expansion project, achieving CoD in few months, will further enable Mughal to increase its efficiency and market presence. The reported profitability of FY20 shows Mughal is holding its position. Durable output was reported with the decline in profitability due to increased finance costs. Margins witnessed slight reduction, an industry wide phenomenon, primarily attributable to global increase in prices of raw material (scrap, iron) and depreciation of Pak Rupee. The ratings incorporate the essence of material advancement that the company has achieved in terms of further diversity in revenue streams, which will add not only to the top line but also enhanced profitability, going forward. The management is eying to further improve capacity utilisation for upcoming months. Covid-19 has posed challenges to almost all segments of the economy, worldwide and domestically, where negative implications are being observed on steel sector. The ramifications would continue to unfold, warranting vigilance and timely actions where needed. However, Mughal’s performance is expected to remain strong. The Company is planning to issue a Sukuk of PKR 3,000mln which will be used for meeting working capital requirements. This along with declined key policy rate will result in material savings in upcoming years. The ratings assigned takes comfort from the debt payment account mechanism, apart from the conventional security.
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 remain 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, is primarily engaged in manufacturing and sale of billets, girders and rebars. Mr. Khurram Javed is the driving force behind the Company and is leading the business as a CEO.

About the Instrument
Mughal is planning to issue ‘Listed, Secured & Privately Placed Long Term Islamic Certificates (Sukuk) up to PKR 3Bln (inclusive of a Green Shoe option of PKR 1Bln). The tenor of Sukuk will be 5 years (inclusive 12 months grace period). Sukuk will be 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 shall initially be disbursed against a ranking charge which shall be upgraded to a pari-passu charge within a period of 120 days from final disbursement date. Besides conventional security structure, a debt payment account (DPA) will be maintained with agent bank. One-third of the installment (principal plus profit) will be built up each month by 25th day such that entire upcoming installment is deposited in DPA by 15th day of 3rd month.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.