PACRA Assigns Initial Ratings to Mughal Iron & Steel Industries Limited - Medium Term Sukuk - PKR 2.50bln | Aug-26

Mughal Iron & Steel Industries Limited (“Mughal” or “the Company”) is a leading steel manufacturer that has navigated recent sectoral challenges, including high inflation, elevated interest rates, and economic uncertainty. These pressures began to ease in FY25, supported by declining interest rates, exchange rate stability, and moderating inflation, which helped revive construction activity. The positive momentum has continued into FY26 and is expected to sustain in the near term. Given the sector’s direct linkage with construction, this recovery is likely to support higher volumes, improved capacity utilization, and a more favorable operating environment. However, the rebound remains gradual, as elevated power tariffs and ongoing regulatory adjustments continue to constrain margins. Against this improving backdrop, Mughal’s operational performance demonstrates both resilience and strategic focus. The Company previously operated in both ferrous and non-ferrous segments; however, management plans to scale back non-ferrous operations due to pricing volatility and regulatory challenges, while strategically concentrating on the ferrous segment, which is expected to drive growth supported by projected volumetric increases. Gross margins in ferrous operations are expected to improve, supported by the successful commissioning of the coal-fired power plant under Mughal Energy, which will provide competitively priced electricity, alongside the implementation of BMR initiatives. The Company meets its working capital requirements through a mix of internal and external sources. Of the latter, the Company has been an active player in the commercial borrowing market, having issued multiple short and medium-term notes to finance its working capital needs. The Company was diligent in upholding its financial obligations and met all maturities. Lately, the management decided to avail itself of a permanent working capital line through this source. While short-term borrowing from commercial banks still remains a primary channel of working capital financing, this long-term bond would be an additional help. The forecasted growth is sanguine and this new bond would lend support. In this respect, the Company has issued a Sukuk amounting to PKR 2,000 million (green shoe option of PKR 500mln was not exercised). The proceeds are intended to optimize existing working capital liabilities and strengthen the Company's liquidity profile. Additionally, the management intends to maintain the leverage ratio at a sustainable level. The rating of the instrument is supported by its security structure and other credit enhancement features.
The ratings remain sensitive to achieving projected volumes, sustaining margins, timely debt servicing, and maintaining the financial profile without exceeding current leverage levels.

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. Mr. Khurram Javaid serves as the CEO and is the driving force behind the Company.

About the Instrument
The Company issued a Rated, Secured, Privately Placed, OTC-listed, Medium-Term Sukuk of PKR 2,000 million (green shoe option of PKR 500mln was not exercised) to Qualified Institutional Buyers (QIBs) on August 05, 2026. The facility will have a tenor of three years and will be utilized to finance or refinance the Company’s permanent working capital requirements. It will carry a profit rate of 3MK + 190 bps, with principal repayable in 11 equal quarterly installments commencing six months from the first drawdown. The issue is secured through a joint pari passu charge over present and future fixed assets (excluding land and buildings) with a 25% margin, supported by personal guarantees of the sponsor directors. Additionally, 10% of the issue size will be maintained in an interest-bearing FSRA, while one-third of each upcoming profit or principal installment will be deposited into a DPA to ensure timely debt servicing.