PACRA Maintains the Rating of Mughal Iron & Steel Industries Limited | PP Sukuk | PKR 2.5bln | Dec-23

Mughal Iron & Steel Industries Limited (“Mughal” or the “Company”) is a prominent player in the steel industry having a diverse product slate, including girders and T-iron, apart from rebars. Additionally, there is altogether a different and alternative revenue stream, i.e. the copper ingot. This is entirely export-oriented, providing a shield against import exposure. This shielded the Company from LC-related issues when imports were being a challenge. The business has a good history of rising exports. This has provided an edge to the Company over other players. The Company is sustaining the pressures that have engulfed other mentionable players in the sector. These are emanating from subdued demand, higher cost of doing business especially the power tariff and the impact of rising finance cost. Mughal has been able to face the challenges, though the hit on margins is evident, due to some of the peculiar strengths which the Company possesses. The sector dynamics are not yet promising and the management is expected to keep an eye, especially on two things: volume and margin. The Company is making investments in cheap and alternative energy. Profit margins are expected to take benefit from two things: one once the alternative energy channel becomes operational, and second due to a decline in the policy rate. Further, to manage the financial health, the Company is going to offer PKR 1.5bln equity through the right issue. The rights issue aims to strengthen existing working capital by replacing a portion of debt with equity financing which will support the Company's strategy to enhance financial stability, profitability, and shareholder returns. As per management representation, the margin in copper remains intact while in steel, a slight margin improvement is expected. In the first quarter of FY25, the Company’s top line increased to PKR 21.58bln, up from PKR 21.03bln in the same period last year. This growth was driven by higher sales volumes and increased prices.
The ratings are dependent upon the Company’s ability to sustain its healthy business profile amidst exposure to overall economic slowdown and higher costs.

About the Entity
Mughal Iron & Steel Industries Limited is a public limited Company incorporated in 2010 and is primarily engaged in the manufacturing and sale of billets, girders, and rebars. Currently, a nine-member BoD is monitoring the overall functioning under the chairmanship of Mr. Mirza Javed Iqbal.

About the Instrument
Mughal issued a Rated, Privately Placed, Secured Islamic Certificate (“Sukuk”) of PKR 2.5bln on Dec 28, 2023 to finance the Company’s working capital requirements. The tenor of Sukuk is 15 months and carries a profit rate of 3MK+145bps. The comfort for the rating is drawn from the security structure of Sukuk which is strengthened by i) Pari-passu hypothecation charge over all present & future current assets with a margin of 25% ii) A debt payment account (DPA) is maintained with an agent bank under exclusive charge & right of set-off in favor of Sukuk holders. As per management representation, the required amount of PKR 1bln is maintained in DPA. The principal of the Sukuk would be made in a bullet payment at the time of maturity.