PACRA Maintains the Rating of Mughal Iron & Steel Industries Limited | PP Sukuk

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. This resilience can be attributed to some unique strengths the Company possesses. There is diversity in its product slate, which includes girders, T-iron, and rebars. The Company also has a strong distribution network across the country. 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 that have plagued others in the industry. 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 2 billion 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 46.825 billion, up from PKR 46.050 billion in the same period of previous year. 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 December 2024, compared to 57% in June 2024. 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 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
In March 2021, Mughal issued PKR 3 billion in Listed, Secured, and Privately Placed Long-Term Islamic Certificates (Sukuk) with a 5-year tenor, including a 12-month grace period. Priced at 3MK+1.3% per annum, profit is paid quarterly on the outstanding principal. The security includes a first pari-passu hypothecation charge over movable assets with a 25% margin and was upgraded to a pari-passu charge within 120 days of disbursement. A Debt Payment Account (DPA) is maintained, with one-third of the installment (comprising principal plus profit) is accumulated each month by the 25th day, ensuring that the entire upcoming installment is deposited in the DPA by the 15th day of the third month. As of March 2025, Mughal has paid a total principal of PKR 2,250 million and markup of ~PKR 1,442 million.