PACRA Assigns the Initial Ratings to Mughal Iron & Steel Industries Limited | PPSTS | PKR 3bln | Apr’24

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 mainly comprises Copper related products. Due to increase in volumes as compared to corresponding period, the Company reported a remarkable growth of ~38% in its topline, reaching PKR ~67bln in 9MFY24 (9MFY23: PKR ~48.5bln). A distinguished achievement has been the geographical diversification of its revenue streams, particularly through significant contributions from exports of Copper Ingots and granules to China, which accounted for ~22.9% of revenue as at end Mar’24. This not only bolstered the top line but also ensured a sustained profit stream in the future. However, net margins saw a decline, primarily attributed to high finance costs. The Company's leveraging ratio stood at around 52% in Mar’24. 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 exposure to overall economic slowdown and inflation, herein, effective and prudent management of financial risk indicators remain important. As PPSTS issued, Mughal shall 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. This is a contingency arrangement, as the Company plans to settle it through its internal cash generation. 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. 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 a melting capacity of 590,000M.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 Iron & Steel Industries Limited (MISIL) issued a PKR 3,000mln Short Term Sukuk (PPSTS) on April 18th,2024 to bolster its working capital. This issuance replaces a PKR 2,000mln Commercial Paper (PPCP) issued on April 6, 2023, and matured on January 1, 2024. The financial covenants, finalized based on due diligence, will include: i) Minimum Current Ratio of 1.0x; ii) Minimum historical DSCR of 1.1x; & iii) Maximum Leverage Ratio of 3.5x will be maintained during the transaction tenor. The tenor of PPSTS will be 6 months and is carrying a profit rate of 22.78% p.a.(6MK+110bps). Profit and principal will be realized at the time of maturity.