The Pakistan Credit Rating Agency Limited
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Usama Zubair

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PACRA Maintains Entity Ratings of Mughal Iron & Steel Industries Limited

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Positive Positive
Rating Watch - -

Mughal is a known name with relatively strong position in the steel industry. The Company has diversity in its product slate; Rebars, T-Iron and Girders etc. Furthermore, establishment of strong brands like ‘Mughal Supreme’ gives competitive edge to the Company. The company has attained formidable market share by penetrating retail segment. The strategic realignment executed over the last few years by channeling 60% volumes (previous: 10% of sales mix) to retail market has been fruitful. The capacity expansion project (planned COD: Sep-20) will further enable Mughal to increase its efficiency and market presence. The reported profitability in recent period shows that Mughal is holding its position. The established distribution network and knowledge of management on supply chain dynamics is a positive contribution to Mughal. The business profile indicates that the company was able to maintain its volumes but at reduced profitability. Margins witnessed slight reduction, an industry wide phenomenon, primarily attributable to global increase in prices of raw material (scrap, iron) and depreciation of Pak Rupee; high finance cost also played a negative role which will now be rationalized given decline in key policy rate. The general industry dynamics reflect weakening. The governance framework is good considering the listed status of the company. Lock down imposed due to COVID-19 outbreak for around two months of 4QFY20 will impact the profitability for FY20; still expected to stay in good range. The management eying to sustain capacity utilization at current level for upcoming months. Covid-19 has posed challenges to almost all segments of the economy, worldwide and domestically, where negative implications are being observed on steel sector. The ramifications would continue to unfold, warranting vigilance and timely actions where needed. Mughal’s financial risk matrix is stretched where debt to equity ratio stands at around 60%. To retire a portion of STB whilst supporting working capital, the company is planning to issue a Sukuk of PKR 3,000mln. Going forward, vigilant management of working capital and proper channeling of additional capacity are essential to support comfortable repayments.
The ratings are dependent upon the company’s ability to sustain its healthy business profile amidst strong competition, 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, is primarily engaged in manufacturing and sale of billets, spring steel, deformed bars, rebars, cold twisted rebars and a range of sections for the downstream industry. The company is majority owned (~75%) by the Mughal Family. The overall control of the Company vests in the nine members’ board of directors, wherein six are from sponsoring family including the Chairman and the CEO, while three are independent members. During the year, Syed Salman Ali Shah resigned from the board which resulted in an appointment of a new board member – Shoaib Ahmed Khan.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.