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Anam Waqas Ghayour

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PACRA Assigns Initial Instrument Rating to Mughal Iron & Steel Industries Ltd. - PP Sukuk

Rating Type Debt Instrument
(28-Apr-21 )
Action Initial
Long Term A+
Short Term -
Outlook Stable
Rating Watch -

Mughal is a known name in the steel industry. The Company’s business profile has sustained and improving, over the last few years. Governance framework strengthened by induction of independent oversight on board. The Company has diversity in its product slate as its operating segments comprising of ferrous &non-ferrous segments. The ferrous segment comprises Billets, Rebars & Girders while the non-ferrous segment comprises Copper Ingot mainly. Furthermore, establishment of strong brands like ‘Mughal Supreme’ gives competitive edge to the Company. The ratings incorporate the essence of material advancement that Mughal has achieved in terms of further diversity in revenue streams. The highlighted achievement through geographical diversification in revenue stream, led to significant contribution from exports of Copper Ingots to China (i-e; ~16% of revenue contribution) which not only added to the top line but also enhanced profitability and also expected to continue the trend, going forward. Mughal has attained formidable market share by penetrating retail segment. The strategic realignment executed over the last few years by channeling 71% volumes (FY20: 60% of sales mix) to retail market has been fruitful. The capacity expansion project, expected to achieve CoD in FY21, delays were witnessed on the back of Covid-19 ramifications. However, it will further enable Mughal to increase its efficiency and market share while the growth in demand is in the sight. The reported profitability for Dec-20 showed significant growth from previous years wherein, FY20 results depicted that Mughal held its position during the challenging environment posed by Covid-19. Resilient output was reported with the growth in profitability due to decreased finance costs. Margins witnessed growth, primarily attributable to global increase in local demand and curtailed key policy rates. Mughal issued a Sukuk of PKR 3,000mln which will be used for meeting working capital requirements. The ratings assigned takes comfort from the debt payment account mechanism, apart from the conventional security, collateralized on the back of Sukuk.
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 Javaid is the driving force behind the Company and is leading the business as a CEO.

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 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 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.

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.