PACRA Maintains the Rating of Mughal Iron & Steel Industries Limited | PP Sukuk | PKR 2.5bln | Dec-23

Mughal Iron & Steel Industries Limited (MISIL) is a known name in the steel industry. MISIL posted highest ever topline in 9MFY23, despite of the prevailing adversities. Topline increased by 38% from PKR 48bln to PKR 67bln, was associated with increase in selling prices both in ferrous and non-ferrous segments and increase in volumes in ferrous segments. Non-ferrous volumes declined primarily due to reduced sales of waste, as iron scrap was utilized internally by the ferrous segment. Overall margins witnessed decline of 47% from 2.6bln to PKR 1.4bln, which was mainly due to decline in ferrous margins stemming from higher operational costs. Finance costs escalated significantly due to prevailing high base discount rates. With the installation of an induction furnace and continuous casting machine (CCM) along with timely operationalization of Mughal energy - coal-based captive power plant, going forward efficiencies are expected.
The ratings are dependent upon the Company’s ability to sustain its healthy business profile amidst exposure to overall economic slowdown.

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
MISIL issued a Rated, Privately Placed, Secured Islamic Certificate (“Sukuk” or the “Issue”) of PKR 2.5bln in Dec 2023 to finance the company’s WC requirements. The comfort for the rating is drawn from the security structure of Sukuk which is strengthened by i) Pari-passu hypothecation charge over all present & future current assets with a margin of 25%. Sukuk will be upgraded to a pari-passu charge from a ranking charge within 120 days from the final disbursement date and ii) A debt payment account (DPA) is maintained with an agent bank under exclusive charge & right of set-off in favor of Sukuk holders. The funds equivalent to one-third (1/3rd) amount of the upcoming markup/ profit payment not later than the 10th date of each month would be placed into the DPA so that the aggregate amount available in the DPA on the upcoming Payment Date is equal to the relevant payment Amount. While principal, upfront, an amount equivalent to 10% of the Issue size will be maintained in the DPA account throughout the tenure of the instrument and for the last quarter, in addition to the 10% of the issue size already kept in the DPA account, the issuer will deposit in DPA 1/3 of the principal payable on the 10th of each month such that the entire principal would be accumulated before the due date, along with 1/3rd of the profit payable. The tenor of Sukuk is 15 months and carries a profit rate of 3MK+145bps with profit payable quarterly in arrears on the outstanding principal amount. The principal would be made in a bullet payment at the time of maturity. The company has paid the latest profit payment in June 2024.