PACRA Assigns Initial Ratings to Masood Spinning Mills Limited | PPSTS | PKR 2.0bln | May-25

The ratings of Masood Spinning Mills Limited (“MSML” or “the Company”) reflect its adequate positioning in Pakistan's spinning industry. The assigned ratings take comfort from the Company’s association with the Mahmood Group - the sponsoring group. The Company's principal activity is the manufacturing and sale of yarn and socks. To strengthen its positioning in the rapidly evolving textile industry, the Company recently ventured into the socks segment, aiming to expand its product portfolio and capitalize on more favorable pricing dynamics. The unit is equipped with advanced knitting machinery, enabling production across multiple sock categories while maintaining premium quality standards to meet the requirements of established international clients. Following recent commercialization, the operational efficiencies of the unit have begun to materialize. The management expects the socks segment to make a significant contribution to the topline in the coming quarters, which is likely to enhance the Company’s overall valuation metrics. In 9MFY25, the Company’s topline demonstrated a notable decrease at PKR 23.5bln compared to PKR 28.0bln in 9MFY24, primarily due to a change in the product composition aimed at capitalizing on the growing demand for coarse yarn. Rather than solely relying on topline growth, the management intends to strengthen the Company’s profitability from core business operations. For optimization of the overall cost structure, the management has already invested in renewable energy alternatives, including an operational 11 megawatt solar project. As a result, profitability improved to PKR 190mln in 9MFY25, up from PKR 160mln in 9MFY24. However, the transition from the final tax regime to the normal tax regime has increased the tax burden, which is largely an industry-wide trend. The substantial working capital lines available from several financial institutions indicate ample borrowing capacity, as per management’s representation. The working capital cycle on the spinning side is adequate, while it is slightly more efficient on the socks side. The Company’s financial risk profile is considered adequate following a slightly stretched working capital cycle. Going forward, the prudent management of the cash flows and improvement in coverage ratios remain essential. The intended sukuk issuance is being done with the dual aim of diversifying and strengthening the working capital funding base of the Company.
The rating of the instrument captures the strength of the security structure, primarily from the DPA (Debt Payment Account) mechanism placed under the lien of the investment agent. The DPA will start getting funded 60 days before maturity and continue fortnightly to ensure that the full issue amount is available in the DPA before maturity. The principal repayment and profit payment will be made as a bullet payment. The underlying instrument is secured by a ranking charge over the Company’s current assets with a 25% margin.

About the Entity
MSML is a public limited Company. The Group sponsors cumulatively own 100% shareholding directly and through associated companies. Overall control of the board is vested with six BODs.

About the Instrument
MSML issued a Rated, Secured, Privately Placed, Short-Term Sukuk on May 22, 2025, carrying a markup rate of 6MK+0.95% with a tenor of 06 months. The Sukuk includes a call option feature, allowing the issuer to partially or fully redeem it with a five-day prior notice. This call option may only be exercised by the Issuer after 3 months from the issuance date and once issued, the call option will be irrevocable. The purpose of the instrument is to finance the working capital requirements of the Company.