PACRA Assigns Initial Entity Ratings to Nisar Spinning Mills (Pvt.) Limited

The Nisar Spinning Mills (Pvt) Limited (“the Company” or “NSMPL”) ratings emanate from the strapping profile of the sponsoring group-ATS. The ATS group operates and has an appreciable presence in multiple diversified industry segments like Chemical, Plastic, Metals, Spinning and Synthetic leather. Three Companies primarily operate under the umbrella of the ATS group which includes ATS Synthetic (Pvt) Ltd, Nimir Chemical Pakistan & NSMPL. The core operating activity of the NSMPL is spinning and their final products are yarn and non-woven fabric. The Companies dedicated to spinning only have an inherent risk of 100% single product concentration and dependency on a sole raw material, primarily raw cotton. This situation can lead to potential vulnerabilities in the supply chain if the supply side disrupts. According to APTMA, Pakistan is likely to fall short by USD 3bln in textile exports from the exports achieved last year. In addition, economic recession and catastrophic flooding in a substantial portion of Pakistan have had a detrimental impact on cotton crops, potentially posing a barrier to local raw material availability. Pakistan is projected to experience a 55% shortfall in its targeted production of domestic cotton. Availability of electricity at subsidized rates, the surge in tax burden and massive PKR devaluation are other challenges specific to the industry. To mitigate energy cost risk, the Company will execute CAPEX for the installation of a 6.6-megawatt solar plant. During FY22, the top line of the Company has shown a growth of 26.2% however some dip was observed in 9MFY23 mainly on the back of slow down of economic activity in China and less competitive international yarn prices which ultimately results in exports sales decline and portfolio shift towards local sales. After March-23 the Company starts to regain its lost momentum. The governance of the Company is considered adequate and needs improvement. The board members and top-tier management have considerable industry-specific experience. During 9MFY23, the margins of the Company are under stress due to expensive raw material procurement and consistent surge in KIBOR. In future, the Company planned to expand its footprint in the value-added product line chain which primarily includes Weaving, Autocoro expansion (producing yarn from waste), Apparel & Denim. The financial risk profile is considered adequate as elevated finished goods inventory levels to manage challenges regarding LC’s opening stretched the working capital management of the Company depicting a current industry norm. The cash flows of the Company are considered moderate accompanied by adequate coverages. Capital structure is leveraged where borrowings are comprised of long-term (LTFF) for BMR and short-term to meet working capital requirements. The financial risk profile is expected to improve as the company starts to enter into the consolidation phase by unloading debt from its balance sheet. The benefits of consolidation are yet to be seen.
The ratings are dependent on management’s ability to sustain its growth in revenues, margins and profitability. Prudent management of the working capital, and maintaining sufficient cash flows and coverages are imperative. Further improvement in governance structure and alignment of the Company's performance with its financial projections remains vital for the ratings.

About the Entity
NSMPL was incorporated on June 14, 2005, under the Companies Ordinance, 1984 as a (Pvt) Ltd Company. The board consists of two members: Mr. Anjum Nisar (CEO & Group chairman)and Mr. Tariq Nisar-Executive Director.