Karachi: The Pakistan Credit Rating Agency Limited (PACRA) has assigned a preliminary long-term rating of A+ and a short-term rating of A1 to Mughal Iron and Steel Industries Limited’s proposed PKR 2.5 billion Sukuk. The ratings reflect the company’s robust position in the steel industry despite facing significant sectoral challenges, including subdued demand and rising costs.
According to The Pakistan Credit Rating Agency Limited, Mughal Iron and Steel has demonstrated resilience amidst tough industry conditions characterized by high power tariffs and increasing finance costs, which have impacted margins across the sector. The company’s diverse product slate, which includes girders, T-iron, and rebars, along with a deep penetration in the distribution system, has helped it maintain a competitive edge. Additionally, its export-oriented copper ingot revenue stream has provided a buffer against import exposure and local currency liquidity issues.
Mughal Iron and Steel’s strategic focus on expanding into cheap and alternative energy sources is anticipated to enhance profit margins, particularly as these initiatives become operational and if the policy rate declines. The company’s exports, especially of copper ingots and granules to China, which represented approximately 21% of its revenue in FY24, have not only strengthened its financial performance but also ensured a sustainable profit stream.
Recently, the company’s board approved a PKR 2 billion Balancing, Modernization, and Replacement (BMR) project for its existing steel bar re-rolling mill, which is expected to increase operational efficiency. In FY24, Mughal Iron and Steel’s top line saw a significant rise to PKR 92.383 billion from PKR 67.390 billion in FY23, driven by both increased sales volumes and higher sales prices. Despite this growth, the company faced a slight decline in gross margins due to industry-wide challenges, and net margins were pressured by higher finance costs.
The company’s leverage ratio stood at approximately 57% in June 2024, up from 50.6% in the previous year, indicating an increased reliance on banking facilities and debt instruments to support its funding needs.
The assigned ratings are dependent on Mughal Iron and Steel’s ability to sustain its healthy business profile while navigating an overall economic slowdown and escalating operational costs.