Initial Public Offering of Mughal Manufacturing Modaraba

Mughal Manufacturing Modaraba is a multi-purpose and perpetual Modaraba. It has announced to issue of 10 million Modaraba Certificates at par value of PKR 10 each through Initial Public Offering (IPO). The total fund size of Modaraba is PKR 250 million of which the sponsors have already subscribed PKR 150 million and remaining PKR 100 million is being offered to general public via IPO. Pakistan’s leading brokerage house, AKD Securities Limited has been mandated to act as Consultant to IPO. The subscription will be received on 11-12 July 2018. The Modaraba plans to acquire re-rolling mill on Ijarah (operating lease) for a minimum period of ten years for manufacturing and sale of T-Iron. The proceeds from the IPO will be utilized primarily for meeting raw material and other operational requirements. The Modaraba is backed by one of the largest players in the steel industry, Mughal Iron and Steel Industries Limited.

Following are the key considerations for the potential investors:

Strong demand dynamics

According to the Pakistan Social and Living Standards Measurement Survey (FY15), Girder and T Iron was the most used material for construction of roofs across Pakistan with a 39% share. The percentage is higher in rural areas at 45% as compared to that of 28% in urban areas. As per estimate of World Bank, shortfall of housing units in Pakistan stands at 10 million units which are likely to keep the demand strong for the input material for the foreseeable future.

Sponsor Profile

The sponsors of the Modaraba and Mughal Group have been engaged in the steel industry for over a decade with a tremendous track record and repute. The group commands strong management prowess with a track record of successful business operations.

Favorable business demographics

Pakistan has posted robust economic growth over the last 5 years and the trend is expected to continue. Growth in FY17 was reported at 5.7%, which was the highest percentage growth in a decade. The World Bank estimates have put the GDP growth numbers at 5.5% and 5.8% for FY18 and FY19 respectively which bodes well for the construction industry.

Strong Distribution Network

The Mughal group already has a very strong footprint in the local market through its well-connected dealer network. The Modaraba will have easy access to an established market presence.

Tax Benefit

Under the Income Tax Ordinance manufacturing Modaraba’s are subject to a reduced tax rate of 25% compared to current effective corporate tax rate of 29%.

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