PACRA Assigns the Preliminary Ratings to Mughal Iron & Steel Industries Limited | PPSTS | PKR 2.5bln | TBI

Mughal Iron & Steel Industries Limited (“Mughal” or “the Company”) is a prominent player in the steel industry. The Company is sustaining the pressures that have engulfed other mentionable players in the sector. These are emanating from subdued demand, higher cost of doing business especially the power tariff and the impact of rising finance cost. Mughal has been able to fare the challenges, though the hit on margins is evident, due to some of the peculiar strengths which the Company possesses. There is diversity in its product slate, having girders and T-iron, apart from rebars. The Company has deep penetration in the distribution system of the country. Additionally, there is altogether a different and alternative revenue stream, i.e. the copper ingot. This is entirely export oriented, providing shield against the import exposure. This shielded the Company from LC related issues when imports were being a challenge. The business has a good history of rising export. This has provided an edge to the Company over other players. The sector dynamics are not yet promising and the management is expected to keep an eye, especially on two things: volume and margin. The Company is making investments in cheap and alternative energy. Profits margins are expected to take benefit from two things: one once the alternative energy channel becomes operational, and second due to decline in the policy rate. The exports of copper ingots and granules to China accounted for ~21% of revenue in FY24. This not only bolstered the top line but also secured a sustainable profit stream for the future. Recently, the board approved a PKR 2bln Balancing, Modernization, and Replacement (BMR) project for the existing steel bar re-rolling mill, aimed at enhancing operational efficiency. In FY24, the Company’s top line surged to PKR 92.383bln from PKR 67.390bln in FY23. This growth was fueled by both increased sales volumes and higher sales prices. However, despite this growth, there was a slight decline in gross margins due to industry related challenges, as explained. Additionally, net margins faced pressure from higher finance costs, with the Company’s leverage ratio reported at ~57% in June 2024, up from 50.6% in June 2023. To support its funding requirements, the Company has relied on banking facilities and debt instruments.
The ratings are dependent upon the Company’s ability to sustain its healthy business profile amidst exposure to overall economic slowdown and higher costs.

About the Entity
Mughal is a public limited company incorporated in 2010, is primarily engaged in the manufacturing and sale of billets, girders, and rebars. Mr. Khurram Javaid is the CEO.

About the Instrument
MISIL is in process to issue a PKR 2,500mln Privately Placed Short Term Sukuk (PPSTS) in October’24 to bolster its working capital. This issuance replaces a PKR 3,000mln PPSTS issued on April 18, 2024, and matured on October 15, 2024. The financial covenants, to be finalized based on due diligence, will include: i) Minimum Current Ratio at 1.0x; ii) Minimum Interest Coverage Ratio at 1.1x; & iii) Maximum Leverage Ratio at 3.5x will be maintained during the transaction tenor. Though unsecured, MISIL ensure that it has adequate liquidity available in the form of cash and /or cash equivalents and / or unutilized credit limits with financial institutions to fully settle the due amount (both principal and interest) on the due date. Furthermore, the Issuer undertakes to share utilization status of its available working capital lines on a monthly basis with Issue Agent, for onwards sharing with the Investors.