PACRA Assigns Initial Ratings to Mughal Iron & Steel Industries Limited | PPSTS | PKR 2.5bln | Jun’25

Mughal Iron & Steel Industries Limited (“Mughal” or “the Company”) remains a prominent player in Pakistan’s steel sector, navigating a challenging macroeconomic and industry environment alongside its peers. The sector continues to face headwinds, including subdued domestic demand, rising input and operational costs, particularly due to elevated power tariffs. Despite these pressures, Mughal has demonstrated resilience, although profitability margins have been impacted. This resilience stems from several strategic strengths unique to the Company. Mughal maintains a well-diversified product portfolio comprising girders, T-iron, and rebars, supported by an extensive nationwide distribution network. Moreover, the Company benefits from a differentiated revenue stream through the export of copper ingots and granules, which are fully export-oriented. This export focus has allowed Mughal to partially insulate itself from challenges affecting others in the sector, such as restrictions on letters of credit (LCs). The steady growth in exports has also enhanced the Company’s competitive positioning within the industry. Looking ahead, Mughal’s management remains focused on two critical areas: expanding volumes and protecting margins. To this end, the Company is investing in cost-efficient and alternative energy solutions aimed at reducing power costs, which are expected to positively impact profitability upon commissioning. Additionally, an anticipated reduction in the policy rate may provide further margin relief through lower finance costs. During 9MFY25, the Company generated revenue of PKR 66.168 billion, compared to PKR 67.134 billion in the same period last year, reflecting a marginal decline due to industry-wide challenges. Export sales of copper ingots and granules, primarily to China, contributed ~19% to total revenue during the period, offering a meaningful and sustainable boost to the Company’s topline performance. Gross margins declined slightly in response to ongoing sectoral pressures, while net margins were further constrained by elevated finance costs. Nevertheless, Mughal's financial position showed modest improvement, with the leverage ratio reducing to ~54% as of March 2025, down from 57% in June 2024. To meet its funding needs, the Company continues to utilize a mix of banking facilities and debt instruments.
The ratings are contingent upon the Company’s ability to maintain its healthy business profile amid prevailing economic slowdown and inflationary pressures. In this context, effective and prudent management of key financial risk indicators remain critical. 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
In June 2025, Mughal Iron issued a PKR 2,500 million Privately Placed Short-Term Sukuk (PPSTS) to support its working capital requirements. This issuance replaces a previous PPSTS of the same amount, which was issued on October 21, 2024, and matured on April 22, 2025. The financial covenants established through due diligence, including a minimum Current Ratio of 1.0x, a minimum Interest Coverage Ratio of 1.1x, and a maximum Leverage Ratio of 3.5x, all of which are to be maintained throughout the tenor of the instrument. While the Sukuk is unsecured, Mughal has assured that it holds adequate liquidity in the form of cash, cash equivalents, or unutilized credit lines with financial institutions to fully meet its repayment obligations. Both principal and profit will be repaid in a single bullet payment at the end of the Sukuk’s tenor.