Karachi: VIS Credit Rating Company Limited has reaffirmed the 'A+' (Single A Plus) rating with a 'Stable' outlook for Mughal Iron & Steel Industries Limited's Sukuk I issue. This rating signifies good credit quality with adequate protection factors, although risk factors may change with economic shifts. The previous rating was announced on December 8, 2023.
According to VIS Credit Rating Company Limited, Mughal Iron & Steel Industries Limited, listed on the Pakistan Stock Exchange, specializes in manufacturing and selling mild steel products and operates in both ferrous and non-ferrous segments. The company, established in 2010, is headquartered in Lahore with facilities located on Sheikhupura Road and sales centers at Badami Bagh, Lahore.
The company's Sukuk, valued at Rs. 3 billion, is a rated, listed, secured, and privately placed long-term instrument. It has a five-year tenor, including a one-year grace period, and will be redeemed in 16 equal quarterly payments starting from the 15th month post-issuance. A debt payment account is maintained with the agent bank, requiring monthly deposits to cover upcoming installments.
The reaffirmed ratings consider the business risk profile of the steel bar industry in Pakistan, marked by high cyclicality, reliance on imported raw materials, and energy consumption. The industry contends with demand fluctuations influenced by construction sector performance, currency depreciation, and competitive market dynamics. Despite support from government infrastructure spending, demand volatility persists due to economic cycles, inflationary pressures, and financing constraints affecting private construction activities.
Mughal Iron & Steel's financial performance reflects revenue growth in both segments due to increased pricing and volume. However, input-cost inflation, currency depreciation, and energy expenses have constrained gross margins. Liquidity remains adequate, though key metrics have slightly contracted. Increased debt utilization has raised capitalization levels, while coverage metrics indicate pressure from reduced operational income amid higher interest expenses. Despite lower funds generation from operations, management anticipates meeting near-term financial obligations through current liquidity, with expectations of improvement from enhanced exports of non-ferrous products and cost efficiencies from captive power generation.
Future ratings will depend on the company's ability to improve profitability margins, manage debt service coverage effectively, and maintain adequate liquidity ratios amid high interest costs.