PACRA Maintains Entity Ratings of Mekotex (Private) Limited

The Company's ratings underscore its robust business profile, exemplified by a trajectory of ascending revenues and profitability in recent years. These ratings factor in the strong business acumen of its sponsors, establishing Mekotex Group as a vertically integrated textile powerhouse. The Company functions as a composite unit within the textile sector. Through prudent investment in Business Modernization and Reinvestment (BMR) initiatives and expansion endeavors, Mekotex Group has fortified its competitive edge through cutting-edge technological upgrades. This strategic approach has facilitated the capture of burgeoning local market demand, while exports are deftly channeled through the corporate entities of KAM International and KAM Apparel. The operational spectrum encompasses ginning, spinning, weaving, and digital printing. Recently, the group has ventured into the value-addition segment and enjoying good responses from export destinations. A marketing strategy is devised to further enhance the current product’s penetration in international markets. The Company has witnessed a substantial upswing in top-line revenue, supported by enhanced gross profit and operating margins, thereby bolstering its overall business standing. However, heightened finance costs have exerted downward pressure on profitability, leading to a reported bottom line of PKR 284mln in 9MFY23, a decline compared to PKR 870mln recorded in 9MFY22. The financial risk landscape reflects elevated total borrowings (larger contribution from short-term borrowings) with sustained coverage over the last few years. An extended working capital cycle reflects the processes undertaken to manufacture the end product. The strategy is to survive through the challenging times and sustain the business volumes.
The ratings are dependent on the Company’s ability to maintain a strong business profile and optimal capacity utilization. Meanwhile, careful management of financial obligations is imperative. Improvement in reporting mechanism and governance framework would be critical for the ratings.

About the Entity
Mekotex Pvt. Limited was incorporated in 1991. It specializes in denim fabric. In 1993, the company also started producing fabric for home textiles. Currently, the Company specializes in ginning, spinning, and weaving: both denim and Greig fabric, processing, and digital printing. The company’s operations are supported by 4 ginning machines, ~110,000 spindles (spinning), 450 looms (weaving), and 5 digital printing machines. Mekotex is a family-owned business with majority shares owned by three brothers, Mr. Riyan Ashraf (S/o Mr. Ashraf Majeed (late)) (36%), Mr. Khalid Majeed (28%), and Mr. Shoaib Majeed (28%). The group has diversified itself into energy and water projects. Mekotex's Board comprises 5individuals, of which 3 are sponsors. The Company has recently inducted two independent non-executive directors on the Board. The overall management of the Company rests with the CEO, Mr.Khalid Majeed.