Lahore, September 24, 2020 (PPI-OT): Mughal is a known name with relatively strong position in the steel industry. The Company has diversity in its product slate; Rebars, T-Iron and Girders etc. Furthermore, establishment of strong brands like ‘Mughal Supreme’ gives competitive edge to the Company. The company has attained formidable market share by penetrating retail segment. The strategic realignment executed over the last few years by channelling 60% volumes (previous: 10% of sales mix) to retail market has been fruitful. The capacity expansion project (planned COD: Sep-20) will further enable Mughal to increase its efficiency and market presence.

The reported profitability in recent period shows that Mughal is holding its position. The established distribution network and knowledge of management on supply chain dynamics is a positive contribution to Mughal. The business profile indicates that the company was able to maintain its volumes but at reduced profitability. Margins witnessed slight reduction, an industry wide phenomenon, primarily attributable to global increase in prices of raw material (scrap, iron) and depreciation of Pak Rupee; high finance cost also played a negative role which will now be rationalized given decline in key policy rate. The general industry dynamics reflect weakening.

The governance framework is good considering the listed status of the company. Lock down imposed due to COVID-19 outbreak for around two months of 4QFY20 will impact the profitability for FY20; still expected to stay in good range. The management eying to sustain capacity utilization at current level for upcoming months. Covid-19 has posed challenges to almost all segments of the economy, worldwide and domestically, where negative implications are being observed on steel sector.

The ramifications would continue to unfold, warranting vigilance and timely actions where needed. Mughal’s financial risk matrix is stretched where debt to equity ratio stands at around 60%. To retire a portion of STB whilst supporting working capital, the company is planning to issue a Sukuk of PKR 3,000mln. Going forward, vigilant management of working capital and proper channelling of additional capacity are essential to support comfortable repayments.

The ratings are dependent upon the company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remain important. Moreover, upholding of governance framework is vital.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com