PACRA Places Entity Ratings of Tata Textile Mills Limited on Rating Watch, Outlook ''Negative''

Tata Textile Mills Limited – a public listed company – is primarily engaged in the manufacturing and sale of different varieties of yarn. The Company is part of Tata group that currently owns three textile mills, Island Textile, Salfi Textile, and Tata Textile Mills Limited. The group has also diversified into power and food sectors. Spinning industry was suffering from lower demand for cotton yarn from China owing to trade war with USA. The recent outbreak of COVID-19 pandemic has impacted the entire textile chain, as demand has gone down globally. The impact on yarn sales has been visible in both local and export markets. Tata Textile's margins and, in turn, profitability suffered as the Company incurred modest losses in 1HFY20. The ratings of Tata Textile incorporate the Company’s moderate leveraging and adequate coverages. Cashflows are expected to remain under pressure in the short-term. Long association of experienced and professional management team and proven track record of sponsors add comfort. Going forward, management is planning to merge all three textile entities in order to benefit from economies of scale.

The Rating Watch signifies prevailing uncertain business dynamics due to COVID-19 outbreak and still evolving situation. The Company’s production facilities, like other industrial units, have been shut down in line with the provincial Government’s directive of lockdown. PACRA is closely monitoring the situation and will take rating action accordingly.
The ratings are dependent on improving business margins and outcome of current scenario. A prolonged downturn or halt in production leading to significantly lower revenues will impact the ratings. Prudent management of short-term liquidity and sustaining adequate coverages is critical.

About the Entity
Tata Textile Mills limited, incorporated in 1991 and a Public Listed Company, is engaged in the manufacturing and sale of different varieties of yarn. In early 90s, TATA group setup Tata Textile Mills Limited as part of expanding its emerging business base. The corporate office of the Company is located at Textile Plaza, M.A. Jinnah Road, Karachi, whereas, vicinity of the plants is in District Muzaffargarh, in the province of Punjab. The Company is operating 2 manufacturing units with a combined capacity of 44,400 spindles.

The CEO, Mr. Shahid Anwar Tata, along with other family members and associated companies, collectively owns majority (~67%) shares of the Company. The remaining shareholding of the Company is held by mutual funds (~11%) and general public (~22%). The overall control of the Company vests in seven member board of directors, including the CEO. Currently, the board comprises two executive directors, four non-executive, and one independent member. Mr. Anwar Ahmed Tata is the Chairman of the board. He has diverse experience in the field of textile sector, bringing specialized and comprehensive experience and knowledge to the board.