PACRA assigns Initial rating to Mughal Iron & Steel Industries Limited | PP Sukuk | PKR 2.5bln | Dec-23

Mughal is a known name in the steel industry. The Company’s business profile has sustained and improved, over the last few years. The Company has a diversified product slate as it operates both in ferrous & non-ferrous segments. The ferrous segment comprises Billets, Rebars & Girders while the non-ferrous segment comprises Copper ingots mainly. Furthermore, the establishment of strong brands like ‘Mughal Supreme’ gives a competitive edge to the Company. Mughal has attained a formidable market share by establishing the brand and earning trust with regard to quality as well as continuously expanding and upgrading its ferrous and non-ferrous plants, the most recent being non-ferrous automation plant which came online in June 23. The company’s top line recorded at PKR 67.390 billion in FY23 reported growth of ~2% (YoY) despite significant decrease in volumes as well as slight erosion in gross margins as the impact of increase in raw material prices and other input costs was not completely transferred to sale prices. Net margins also exhibited a downward trend due to high finance cost. Company’s leveraging ratio was reported at ~ 51% in June 23. To finance its short-term working capital needs the Company has issued a rated and privately placed Sukuk of PKR 2.5bln in Dec-23. However, 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 of the Company 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 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 markup/profit payable.
The ratings are dependent upon the company’s ability to sustain its healthy business profile amidst strong competition and 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. 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 issued a Rated, Privately Placed, Secured Islamic Certificate (“Sukuk” or the “Issue”) of PKR 2.5bln on 28th Dec 2023 to finance the company’s working capital requirements. The tenor of Sukuk is 15 months and carrying 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.