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

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 increased in volumes as compared to corresponding period the Company reported a remarkable growth of ~47% in its top line, reaching PKR 46bln in 1HFY24. 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 ~23% of revenue as at end Dec’23. 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 53% in Dec’23. 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. 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 operates with 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
In March’21, Mughal issued PKR 3bln worth of Listed, Secured, and Privately Placed Long-Term Islamic Certificates (Sukuk). The Sukuk has a tenor of 5 years, including a 12-month grace period. Priced at 3MK+1.3% per annum, profit is payable quarterly in arrears on the outstanding principal amount. The security structure entails a first pari-passu hypothecation charge over all present and future movable assets with a margin of 25% in accordance with the issue amount. Additionally, the Sukuk has been upgraded to a pari-passu charge from a ranking charge within 120 days from the final disbursement date. In addition to the conventional security structure, a Debt Payment Account (DPA) is being maintained with the agent bank. 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’23, Mughal has paid a total principal of PKR 1,500mln and markup of approximately PKR 1,151mln.