The Pakistan Credit Rating Agency Limited
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Uswa Sikandar

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PACRA Maintains Entity Ratings of Mughal Iron & Steel Industries Limited | PP Sukuk.

Rating Type Debt Instrument
(16-Oct-23 )
(28-Apr-23 )
Action Maintain Maintain
Long Term A+ A+
Short Term - -
Outlook Stable 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 is strengthened by presence of independent oversight on 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. The highlighted achievement through geographical diversification in the revenue stream led to a significant contribution from exports of Copper Ingots & granules to China (i-e; ~24% of revenue contribution) which not only contributed to the top line but also brought sustained profit stream, going forward. The company’s top line recorded at PKR 67.390 billion in FY23 reported growth of ~2% (YoY) despite significant decrease in volumes as well as slight erosion in gross margins as the impact of increase in raw material prices and other input costs was not completely transferred to sale prices. Net margins also exhibited a downward trend due to high finance cost . Company’s leveraging ratio was reported at ~ 51% in June 23. Apart from banking facilities, the company is also relying on a few privately placed issued instruments to fuel increase in its WC requirements.
The ratings are dependent upon the company’s ability to sustain its healthy business profile amidst strong competition and exposure to overall economic slowdown and inflation, 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 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 500,000M.T., rerolling capacity of 630,000M.T., and non-ferrous recycling capacity of 90,000M.T.. Currently, a nine-member BoD is monitoring the overall functioning under the 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. Total principal of PKR 1125mln and markup of PKR ~938mln have been paid till September 2023 by the Company.

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.