PACRA Maintains the Entity Rating of Nagina Cotton Mills Limited

Nagina Cotton Mills Limited (“NCML” or “the Company”) is part of the prominent group – Nagina Group (“the Group”), which is one of the oldest medium-sized textile groups in Pakistan. The Group includes six private limited Companies and three publicly listed Companies, including NCML and Ellcot Spinning Mills Limited (ESML) in spinning, as well as Prosperity Weaving Mills Limited (PWLM) in weaving. NCML is considered the flagship Company catering mainly to the export segment. The ratings derive comfort from the financial strength of the sponsor's group. The Company’s principal activity is the manufacturing and sale of yarn, with a production capacity of 62,508 Spindles, operating at optimum utilization with state-of-the-art spinning machinery capable of producing high-quality carded and combed cotton, core-spun, and blended yarn for knitting and weaving. In FY25, there has been a prominent strategic shift toward local markets, driven by competitive domestic average price rates. The sales mix for 9MFY25 stood at 81.6% local sales, compared to 45.4% in FY24, while export sales accounted for 18.4%, down from 54.6% in FY24. NCML’s total energy requirement stands at 19.2MW, mainly met by gas generators (66.3%) and the remaining through HESCO (27.0%), furnace oil (0.92%), and solar power (5.8%). The Company intends to rely mainly on HESCO for energy needs during the winter, given the increase in winter gas prices. Alongside, the Company has undertaken renewable energy initiatives aimed at creating a cushion in its cost structure by optimizing energy expenses. In this regard, NCML plans to install a 1.1MW solar power plant over the next six months, enhancing the Company’s cumulative solar capacity to 3.6MW. The Company's topline marginally declined to PKR 15.4bln in 9MFY25 from PKR 15.6bln in 9MFY24, primarily due to a strategic shift from 20/s to 18/s yarn count (coarser yarn) bearing a lower per kg product price. Despite the dip in revenue, the net margins improved, resulting in a bottom line of PKR 76mln (9MFY24: PKR 70mln), buffered through non-operating income and diminished finance costs. Additionally, as per management’s representation, NCML is planning to add six combers to its facility, which is expected to boost the net margin by 1.5%. The Company's financial risk profile is considered moderate, with aptly managed working capital through optimized inventory levels providing a cushion in short-term trade leverage. While the Company has a highly leveraged capital structure dominated by long-term conventional borrowings, the coverages and cash flows are deemed sufficient.
The ratings are dependent on the Company’s ability to increase business margins through operational efficiencies and product quality. The sustainability of cash flows and coverages at a comfortable level remains critical for the ratings. The adherence to the debt matrix at an optimal level is a prerequisite for the assigned rating.

About the Entity
NCML was incorporated in 1967 as a Public Limited Company, with 90.9% shareholding vested with the sponsoring family. The Company has a ten-member board, consisting of five non-executive directors, two executive directors, and three independent directors. Mr. Shahzada Ellahi Shaikh serves as the Chairman of the Board. The management team is headed by the CEO, Mr. Amin Ellahi, who is well-versed in the textile business, providing the requisite acumen.