PACRA Assigns Preliminary Rating to Mughal Iron and Steel Industries Amid Challenging Industry Dynamics

Lahore: Mughal Iron and Steel Industries Limited, a key figure in the steel sector, has received a preliminary rating from the Pakistan Credit Rating Agency (PACRA) for its upcoming funding endeavor. The rating assesses a PKR 1.5 billion debt instrument, reflecting the company’s strategic position amidst a slowly recovering industry landscape.

Despite broader economic improvements in FY25, including easing inflation and declining policy rates, the steel industry continues to face significant challenges. The sector lags in power tariff reductions and regulatory changes, contributing to a slower recovery compared to other construction-related industries. Nevertheless, with interest rates expected to fall to around 11% by the end of June 2025, the profitability of steel companies like Mughal is projected to improve, contingent upon market demand and raw material price trends.

Mughal Steel’s market share has experienced growth, partly due to other industry players operating at reduced capacity. However, a strategic shift in the company’s sales mix led to a decrease in overall revenues, declining from PKR 92.383 billion in FY24 to PKR 89.479 billion in FY25. The contraction in margins was influenced by finance costs and taxation, although a reduction in the leverage ratio from 57.6% to approximately 48% during the same period was noted.

The company’s working capital is primarily funded through internal cash generation, supplemented by banking facilities and debt instruments. Future ratings will depend on Mughal’s ability to maintain its business profile, successfully commission the BMR project, and advance the Mughal Energy initiative, which are expected to bolster production, efficiency, and cost management.

PACRA’s assessment indicates optimism for Mughal Steel’s enhanced financial performance, contingent on strategic execution and favorable market conditions. The company’s focus on improving its financial metrics and ensuring timely debt repayment remains a priority.