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 key player in the steel industry, navigating the same challenges faced by other major companies in the sector. These challenges include subdued demand, escalating business costs, especially due to higher power tariffs, and the impact of rising finance costs. Despite these pressures, Mughal has managed to weather the storm, although its margins have been affected. There is diversity in its product slate, which includes girders, T-iron, and rebars. In addition to its steel products, Mughal has a distinct revenue stream from copper ingots, which are fully export-oriented, helping the Company mitigate risks related to imports. This export focus shielded Mughal from issues like LC related problems. Mughal's consistent rise in exports further strengthens its position compared to other players. Although the sector's outlook remains uncertain, management is focusing on two key areas: volume and margin. The Company is investing in cost-effective and alternative energy sources, which are expected to improve profit margins once operational. Furthermore, a decline in the policy rate is expected to also provide some margin relief. In 1HFY25, the Company’s export of copper ingots and granules to China contributed ~19% to its revenue, helping to lift the top line and providing a sustainable source of profit. In a bid to enhance operational efficiency, Mughal's board approved a PKR 2bln Balancing, Modernization, and Replacement (BMR) project for its steel bar re-rolling mill. This is part of the Company's ongoing efforts to improve its operations. In 1HFY25, Mughal's revenue slightly rose to PKR 46.825bln, up from PKR 46.050bln in the corresponding period. However, despite this revenue growth, the Company experienced a slight decline in gross margins due to sector-wide challenges. Net margins were also squeezed by rising finance costs. The Company’s leverage ratio slightly decreased to ~56% in Dec-24, compared to 57% in Jun-24. To support its funding requirements, Mughal 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, herein, effective and prudent management of financial risk indicators remain important. Moreover, upholding of governance framework is vital.

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
Mughal is in process to issue a PKR 2,500 million (Inclusive of green shoe option of PKR 500mln) Privately Placed Short Term Sukuk (PPSTS) in May’25 to support its working capital. The ratings was previously issued for PKR 2bln on March-25 and now the size is revised to PKR 2.5bln. This issuance replaces a PKR 2,500 million PPSTS which was issued on October 21, 2024, which is matured on April 22, 2025. 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. Although unsecured, Mughal assures it has sufficient liquidity, including cash, cash equivalents, and unutilized credit limits, to fully settle the principal and interest on the due date, with payment made in a lump sum at maturity.