PACRA assigns Initial Ratings to Nishat Mills Limited | PPSTS | PKR 10bln | Nov-23

The ratings reflect the established position of Nishat Mills Limited (“Nishat Mills or the company”) in the country’s competitive textile landscape. This stems from its remarkable history as the largest export-based, fully integrated unit along with a sizable strategic portfolio on a standalone basis. The Company enjoys prominence in the textile sector attributable to its diverse product range comprising Yarn, Comber Noil, Grey Cloth, Processed Cloth, Made-ups, Garments, Towels, and Bathrobes. A major portion of topline emanates from export sales as the Company has established a stable customer base with several export destinations during the last few years. This has benefited the topline with attractive foreign exchange gain. A significant chunk of revenue is also captured from the local market. The Company has a forte in the local textile industry catering to the segments of Spinning, Weaving, Dyeing, Garments, Home textile, and Terry. On a consolidated basis, the investment portfolio, emanating from the company's implicit Holdco status within the Group, generates a healthy dividend stream, boosting the core profitability. During 1QFY24, the Company’s topline demonstrated positive growth YoY despite the onslaught of macroeconomic challenges. Due to the consolidated efforts of management on the expense side, the Company secured good margins. Deployment of funds in the capital market benefited the bottom line. The Company was able to secure a net profitability of PKR 4.5bln (1QFY23: PKR 4.1bln). The free cash flows from operations (FCFO) illustrate that the company is generating sufficient cash to meet its working capital requirements as evidenced by reduced borrowings. However, the management of coverages and the working capital cycle remains essential. The Company is expected to maintain its strong financial profile, going forward.
The ratings are dependent on the Company's ability to sustain its core margins and profitability. Preserving low-leveraged capital structure and sound coverages remains imperative.

About the Entity
Nishat Mills, established in 1951, is the largest textile composite unit and the country's leading exporter in the respective market. The Company’s majority stake (~51%) is owned by members of the Mansha family and Nishat Group companies. Nishat Group – a leading conglomerate – maintains a substantial presence in the country's financial sector and a strong foothold in the Textile, Cement, Power, and Hospitality sectors. The Group has also ventured into Pakistan's automobile assembly industry through a joint venture with Hyundai Motors. The board comprises seven members with two directors representing the sponsoring family – including the Chairman – Mr. Hassan Mansha and the CEO. The CEO, Mr. Umer Mansha, has been associated with Nishat Mills since 1994 and carries extensive experience in the textile industry.

About the Instrument
The company has issued a Rated, Privately Placed, Unsecured, Non-convertible Shariah-compliant, Short-term Sukuk or Islamic commercial paper amounting to PKR 10,000mln in November 2023. The purpose of the instrument is to be utilized to meet short-term working capital funding requirements including the procurement of cotton. The tenor of the instrument will be 6 months. It carries a profit rate of 3MK+15bps. The profit will be paid quarterly. The instrument has a call option which is exercisable on or after three months from the date of issue.