Mughal Energy Limited

CREDIT RATING REPORT | Dec-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
01-Dec-25 A A2 Developing Maintain -
02-Dec-24 A A2 Developing Maintain -
01-Dec-23 A A2 Stable Maintain -
01-Dec-22 A A2 Stable Initial -
About the Entity

MEL was incorporated as a public unlisted company in Pakistan on August 19, 2012. In November 2023, MEL was acquired by MISIL and became a wholly owned subsidiary. Subsequently, on June 13, 2024, MEL was listed on the Growth Enterprise Market (GEM) Board of the Pakistan Stock Exchange Limited (PSX), with a free float share of 10%. The Board is chaired by Mr. Mirza Javed Iqbal, who brings over four decades of experience in the steel and iron industry. The CEO, Mr. Khurram Javed, has been actively involved in the family business and supported by a team of experienced professionals with the necessary technical expertise and industry knowledge.

Rating Rationale

Mughal Energy Limited ("MEL" or "the Company") is a subsidiary of Mughal Iron & Steel Industries Limited (MISIL). The Company is in the process of installing a 36.5 MW hybrid captive power plant can operate on Mix of indigenous and imported Coal, and Bark, primarily intended to supply electricity to MISIL. MEL has been granted a 30-year generation license by the National Electric Power Regulatory Authority (NEPRA), effective from the Commercial Operation Date (COD). The project's total estimated cost is approx. PKR 6.5bln, with financing planned through a 65:35 debt-to-equity ratio. The Company has already secured the plant equipment and land using fully injected sponsor equity, reducing procurement risks. The required debt financing has been arranged and deployed for the installation and testing of the plant ahead of commercial operations. While the Company was previously looking to raise the balance of PKR 2.5 billion through a long-term Sukuk issuance, MISIL provided an unsecured long-term loan of PKR 2.5 billion during FY25 to bridge the timing gap, with the intention of refinancing once the hybrid captive power plant becomes operational. Off-take risk is mitigated by a long-term power purchase agreement already signed with MISIL. As of FY25, the project has achieved a key milestone in the development of its 36.5 MW hybrid captive power plant with the completion of the hydro testing phase, a critical step that verifies the mechanical integrity and pressure endurance of pipelines, boilers, and related systems before commencing electrical works. The project is now in its final stages, and electrification is underway, with COD expected by the end of this calendar year. In addition, the Company has completed the installation of its 1.8 MW solar power project, which has been leased to the holding company on a short-term basis until the hybrid plant becomes operational. The directors’ support for timely repayments provides comfort for the Company’s financing, and their projected support in the first year of COD will be important for ensuring the timely repayment of debt, alongside the expected self-sufficiency of the project. The sponsor has also approved corporate guarantees of up to PKR 6bln in favor of MEL to secure financing for a five-year period. Once operational, the MEL plant will enable MISIL to leverage in-house power generation, resulting in reduced electricity costs. Consequently, this will enhance margins by lowering overall production costs—a critical advantage for MISIL. The “Developing Outlook” reflects the ongoing progress of the project until the plant’s commissioning.

Key Rating Drivers

The ratings are contingent upon the management’s ability to meet completion milestones. However, the assigned ratings also take into account the strength and business acumen of the group. Going forward, the timely achievement of COD, directors’ support for the timely repayment of debt, generation in line with assumptions, fulfillment of PPA terms, and projected revenue and cost outcomes remain important factors in maintaining the assigned ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Mughal Energy Limited

rating analysis

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Profile
Plant

Mughal Energy Limited (MEL) is developing a 36.5 MW hybrid captive power plant situated at 17-km Lahore–Sheikhupura Road, designed to supply electricity to group companies of the Mughal Group. Civil and mechanical works reached near completion with hydro-testing concluded in Aug-25, a key pre-commissioning milestone verifying boiler and pipeline integrity. The plant will operate on coal and bio-fuel blend.


Tariff

MEL holds a NEPRA-approved generation license permitting supply to three Bulk Power Consumers (BPCs) within the group. Tariff finalization remains pending at COD but is expected to follow the captive-supply framework covering O&M, fuel, depreciation, finance cost and return on equity. Indicative internal modelling suggests delivered power in the PKR 23 – 29 /kWh range, below grid cost, underpinning group cost-efficiency once operational.


Return on Project

Project return is contingent on timely commissioning, stable fuel sourcing, and negotiated BPC tariffs. With direct captive offtake, volumetric risk is limited. The plant is projected to materially reduce MISIL’s (Mughal Iron & Steel Industries Limited) grid dependence from ≈ 80% to ≈ 50% post-COD, improving cost predictability and supporting group margins.


Ownership
Ownership Structure

MEL is a wholly owned subsidiary of Mughal Iron & Steel Industries Limited (MISIL) and is listed on the PSX GEM Board (May 2024) with ~10 % free float. Listening enhances transparency while the parent retains full strategic control.


Stability

The ownership structure is expected to remain stable, as the plant will be supplying electricity to the sponsor itself.


Business Acumen

The sponsor group is one of Pakistan’s leading long-steel producers with a vertically integrated supply chain. Their longstanding presence reflects both resilience and strong market knowledge, positioning them as one of the key players in the sector.


Financial Strength

MISIL’s consolidated financial position remains sound, supported by sustained operations and diversified financing channels. At the group level, net worth exceeds PKR 20bln, with established access to major commercial banks and capital markets. The holding company’s ability to inject funds or extend guarantees—evidenced by the guarantees and loans provided to the Company when required—offers a strong credit cushion for MEL during both pre- and post-COD phases. During FY25, the Sponsor further injected PKR 2.5 billion to support construction activities, reaffirming the depth and reliability of financial support available to the project.


Governance
Board Structure

The Board comprises seven members (6 male, 1 female): 2 independent, 4 non-executive and 1 executive director. The Chairman (Mr. Mirza Javed Iqbal) and CEO (Mr. Khurram Javaid) hold separate offices, ensuring role segregation. Board committees: Audit and HR functioned actively, meeting 4 and 1 times respectively during FY25.


Members' Profile

Board members include seasoned professionals with multi-decade experience in industrial operations, finance, and corporate governance. The independent directors : Mr. Muhammad Aslam Bhatti and Mrs. Jahanara Sajjad Ahmad , bring oversight experience in audit and regulatory compliance. The sponsor family directors represent strategic leadership continuity.


Board Effectiveness

The Board convened six times during FY25, focusing on governance, internal controls, and project oversight. Audit and HR&R Committees functioned effectively, with periodic reviews of financial reporting and compliance. The independent internal audit function reports directly to the Audit Committee. The Board has adopted a formal Code of Conduct, whistle-blower mechanism, and related-party transaction polic


Financial Transparency

The company follows SECP’s Listed Companies (Code of Corporate Governance) Regulations 2019. An internal audit function reporting to the Audit Committee reviews control effectiveness. Six directors have completed certified training. A formal Code of Conduct and whistle-blower policy are implemented. FY25 audit opinion was unmodified.


Management
Organizational Structure

Day-to-day operations are being overseen by the CEO assisted by CFO Mr. Zafar Iqbal and COO Mr. Shakeel Ahmed. The team has extensive industrial experience within the Mughal Group and previously managed multiple greenfield projects.


Management Team

The core team has prior experience executing large-scale industrial and energy projects within the group. CFO Zafar Iqbal manages treasury and financing activities across MISIL and MEL, ensuring coordinated liquidity management. COO Shakeel Ahmed oversees plant engineering and commissioning phases, leveraging technical expertise from previous Mughal expansion projects.


Effectiveness

Project execution remained largely on schedule until mechanical completion. COD slipped from Q1 CY25 (target per FY24 meeting) to late CY25 owing to import logistics and final electrical works. Despite delay, milestone completion indicates decent project management.


Oversight of Third-Party Service Providers

EPC and commissioning services are provided by Izhar Group Companies, a reputed local contractor. Independent technical audits accompany each stage; MEL must now pivot from construction supervision to long-term O&M governance.


Completion Risk
Engineering and Procurement

All major equipment and project land have been fully procured. As the primary capital expenditures have already been incurred and no EPC contract is involved, the likelihood of cost overruns is negligible, with no significant remaining costs anticipated.


Power Purchase Agreement

PPA has been signed with Mughal Iron & Steel Industries Limited (MISIL). Group alignment ensures offtake certainty.


Pre-Commissioning Progress

Hydro-testing completion confirms readiness for hot commissioning. COD is anticipated within FY26 subject to fuel logistics and regulatory clearances.


Performance Default Risk

Post-COD, exposure arises from coal quality and price volatility. MEL plans a diversified mix of imported and local coal, with bio-fuel substitution to moderate cost and emissions. Multi-fuel design mitigates supply interruptions.


Performance Risk
Industry Dynamics

Pakistan’s industrial sector continues to face high grid tariffs and intermittent supply; captive power remains a strategic imperative. MEL’s hybrid model aligns with national push for diversified, efficient captive generation.


Operation and Maintenance

Operations and maintenance of the plant will be carried out internally by the company using its own technical team. Adequate provisions have been made for spare parts, staff training, and system support to ensure efficient and uninterrupted operations.


Resource Risk

Post-COD, exposure arises from coal quality and price volatility. MEL plans a diversified mix of imported and local coal, with bio-fuel substitution to moderate cost and emissions. Multi-fuel design mitigates supply interruptions.


Performance Benchmark

As per the company’s officially disclosed specifications, the plant is designed to meet European-origin efficiency and emission standards, with SOx ≤ 300 mg/nm³ and NOx ≤ 200 mg/nm³. These are not projections but part of the plant’s verified engineering design and environmental compliance plan included in the FY25 Annual Report. The benchmarks form part of MEL’s contractual EPC guarantees and serve as the factual baseline for post-COD performance evaluation.


Financial Risk
Financing Structure Analysis

Estimated project cost stands around PKR 6.5 bn, funded ≈ 65 % debt and 35 % equity. Debt comprises bank facilities from Pak Libya, BOP and MCB (~PKR 1.65 bn disbursed in FY24) and forthcoming sukuk proceeds. Sponsor equity and shareholder loans bridge the remainder.


Liquidity Profile

Pre-COD cash outflows are covered through sponsor loans and bank lines. Post-COD liquidity will hinge on timely BPC payments; all payments are intra-group and supported by MISIL’s corporate guarantee for capacity charges.


Working Capital Financing

Upon operation, MEL will require funding for fuel and O&M expenses. Group treasury will provide short-term facilities maintaining ≈ 45 days coal inventory.


Cash Flow Analysis

FY25 loss after tax stood at PKR 21.3mln, reflecting pre-revenue administrative costs. Profitability is expected from FY26 onward with power sales commencement. The solar-lease arrangement provides marginal interim income.


Capitalization

As of FY25, equity stood at PKR 3.44bln, slightly lower than PKR 3.46bln in FY24, while the debt-to-equity ratio was 54%. Once the plant becomes operational and debt repayments commence, leverage is expected to reduce gradually. Currently, the debt is related to project development; going forward, short-term loans for working capital requirements may be added.
 
 

Dec-25

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Mughal Energy Limited

financial summary

(PKR mln)

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Sep-25
3M		 Jun-25
12M		 Jun-24
12M		 Jun-23
12M
A. BALANCE SHEET
1. Non-Current Assets 6,658 6,467 4,465 3,052
2. Investments 0 0 0 0
3. Related Party Exposure 0 0 0 0
4. Current Assets 916 773 678 339
a. Inventories 0 0 0 0
b. Trade Receivables 0 0 0 0
5. Total Assets 7,574 7,240 5,142 3,390
6. Current Liabilities 96 189 116 9
a. Trade Payables 48 148 77 0
7. Borrowings 3,392 3,351 1,193 300
8. Related Party Exposure 654 265 377 0
9. Non-Current Liabilities 0 0 0 0
10. Net Assets 3,433 3,435 3,456 3,081
11. Shareholders' Equity 3,433 3,435 3,456 3,081
B. INCOME STATEMENT
1. Sales 0 0 0 0
a. Cost of Good Sold 0 0 0 0
2. Gross Profit 0 0 0 0
a. Operating Expenses (15) (27) (23) (33)
3. Operating Profit (15) (27) (23) (33)
a. Non Operating Income or (Expense) 18 8 4 6
4. Profit or (Loss) before Interest and Tax 3 (19) (19) (28)
a. Total Finance Cost (5) (3) (0) (0)
b. Taxation 0 0 0 0
6. Net Income Or (Loss) (2) (21) (19) (28)
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) (32) (24) (20) (36)
b. Net Cash from Operating Activities before Working Capital Changes (129) (244) (91) (51)
c. Changes in Working Capital (113) (200) (112) (137)
1. Net Cash provided by Operating Activities (241) (444) (204) (188)
2. Net Cash (Used in) or Available From Investing Activities (82) (1,793) (1,316) (300)
3. Net Cash (Used in) or Available From Financing Activities 389 2,046 1,664 529
4. Net Cash generated or (Used) during the period 66 (191) 145 40
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) N/A N/A N/A N/A
b. Gross Profit Margin N/A N/A N/A N/A
c. Net Profit Margin N/A N/A N/A N/A
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) N/A N/A N/A N/A
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] N/A N/A N/A N/A
2. Working Capital Management
a. Gross Working Capital (Average Days) N/A N/A N/A N/A
b. Net Working Capital (Average Days) N/A N/A N/A N/A
c. Current Ratio (Current Assets / Current Liabilities) 9.6 4.1 5.8 37.5
3. Coverages
a. EBITDA / Finance Cost N/A N/A N/A N/A
b. FCFO / Finance Cost+CMLTB+Excess STB -1.4 -0.3 -0.1 N/A
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) -31.4 -149.2 -49.6 -8.3
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 54.1% 51.3% 31.2% 8.9%
b. Interest or Markup Payable (Days) N/A N/A N/A N/A
c. Entity Average Borrowing Rate 0.0% 0.0% 0.0% 0.0%

Dec-25

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Mughal Energy Limited

rating scale

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Dec-25

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Mughal Energy Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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  3. Conduct of Business
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