Lahore: Mughal Iron & Steel Industries Limited, a significant entity in the steel sector, has been assigned initial ratings for its debt instruments by PACRA. The long-term rating stands at A+, while the short-term rating is A1, with a stable outlook. The company has demonstrated resilience in the face of challenges such as subdued demand, increased operational costs, especially in power, and rising finance costs.
According to Pakistan Credit Rating Agency Limited, Mughal Iron & Steel has managed to mitigate these challenges through its diverse product range, including girders, T-iron, and rebars, and its strong distribution network across the country. The company also benefits from an alternative revenue stream by exporting copper ingots, which has provided a buffer against import-related issues. Exports of copper ingots and granules to China contributed approximately 22% of revenue in the first quarter of FY25, enhancing the company's top line and securing a stable profit stream.
The steel industry's dynamics remain challenging, prompting Mughal Iron & Steel to focus on maintaining volume and margin. The company is investing in alternative energy sources to reduce costs and anticipate benefits from a potential decline in the policy rate. In the first quarter of FY25, the company's revenue increased to PKR 21.584 billion, compared to PKR 21.032 billion in the same period last year, driven by higher sales volumes and pricing. However, gross margins declined slightly due to industry-wide challenges, and net margins were further impacted by rising finance costs, resulting in an increased leverage ratio of approximately 59% in September 2024, up from around 57% in June 2024.
To enhance operational efficiency, the board has approved a PKR 2 billion Balancing, Modernization, and Replacement (BMR) project for the existing steel bar re-rolling mill. The company's future ratings depend on its ability to maintain a strong business profile amidst economic slowdowns and rising costs, relying on banking facilities and debt instruments for funding.