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

Mughal Iron & Steel Industries Limited (“Mughal” or “the Company”) is a prominent player in the steel industry. The Company continues to withstand the pressures that have weighed other famous players in the sector. During FY25, macroeconomic indicators showed signs of improvement, with easing inflation and declining policy rates supporting a gradual recovery in economic activity. This contributed to a modest pick-up in the construction sector, which is expected to maintain positive momentum in the near term. The steel sector, however, is recovering more slowly compared with other construction-related industries. The sector is also lagging in reducing power tariffs, which remain a major component of total cost, while regulatory changes further weigh on the industry, keeping the outlook challenging. Nevertheless, with interest rates easing to around 11.0% by end-June 2025 (from nearly 22.0% at end-FY24), profitability across the sector is expected to improve, although the pace of recovery will remain contingent on demand drivers as well as trends in raw material prices and energy costs. In addition to the modest pick-up in the construction sector, Mughal Steel’s market share has improved, benefiting from the availability of capacity from other players operating at limited levels due to their own challenges. The Company’s non-ferrous segment, which has historically contributed over 20% of revenues through exports, underwent a slight strategic scale-down in FY25 due to operational and regulatory constraints, while refocusing on meeting ferrous demand in the market. As a result of the change in sales mix and the reduction in export volumes, overall top-line declined to PKR 89.479bln in FY25 from PKR 92.383bln in FY24, with margins contracting accordingly. Net margins also faced pressure, with a major portion of the impact arising from finance costs and taxation, although the Company’s leverage ratio improved to ~48% in FY25 from 57.6% FY24. Working capital is funded through internal cash generation. To support additional funding requirements, the Company has also relied on banking facilities and debt instruments.
In line with gradual improvements in the industry, the ratings remain dependent on the Company’s ability to maintain its sound business profile. The successful commissioning of the BMR project, along with the upcoming Mughal Energy initiative, is expected to enhance production performance, operational efficiency, and cost management. Improvement in the Company’s financial matrix and timely debt repayment remain important considerations.

About the Entity
Mughal Iron & Steel Industries Limited, a public limited company incorporated in 2010, is primarily engaged in the manufacturing and sale of mild steel products related to ferrous segments. In addition to its core ferrous operations, the Company also operates in the non-ferrous segment, focusing on the production and sale of copper products. Mr. Khurram Javaid serves as the CEO and is the driving force behind the Company.

About the Instrument
In March 2021, Mughal issued PKR 3bln in Listed, Secured, and Privately Placed Long-Term Islamic Certificates (Sukuk) with a 5-year tenor, including a 12-month grace period. Priced at 3MK+1.3% per annum, profit is paid quarterly on the outstanding principal. The security includes a first pari-passu hypothecation charge over movable assets with a 25% margin and was upgraded to a pari-passu charge within 120 days of disbursement. A Debt Payment Account (DPA) is maintained, with 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 September 2025, Mughal has paid a total principal of PKR 2,625mln (87.5% of the total principal) and markup of ~PKR 1,407mln.