PACRA Assigns Initial Entity Ratings to Nagina Cotton Mills Limited

The ratings reflects Nagina Cototn Mills Limited's improving business profile in harmonization with textile industry dynamics. The company’s revenues are on growing trajectory over the years, a factor of continuous BMR translating into operational efficiencies, eventually higher production volumes. Textile industry in general and spinning industry in particular suffer from low international commodity prices and high cost of doing business in Pakistan. Moreover, re-imposition of custom duties and sales tax on cotton & yarn imports, coupled with increasing interest rates has stretched the textile industry. On standalone basis, the rupee devaluation has provided a requisite breather to the company to sustain its business margins, despite declining exports share. Leveraging of the company has increased owing to debt-driven BMR; though remaines modest. Working capital cycle is stretched on the back of higher inventory procurement. Meanwhile, Nagina Cotton intends to gradually build a sizable investment portfolio. This exposes the company to market risk as exhibited by recent volatility in stock exchange. However, the company was able to limit its losses, as a result of conservative approach in stock allocation. Any significant decline in investments leading to losses, and eventually equity erosion, will impact the financial profile of the company. The management’s ability to manage this risk is critical. The assigned ratings derive comfort from Nagina Cotton’s association with Nagina Group.

The ratings are dependent on the company’s ability to sustain its business profile. The sufficient cash generation to fulfill the increasing financial obligations remain critical for the ratings. At the same time, prudent management of investment portfolio is important.

About the Entity
Nagina Cotton Mills Limited (Nagina Cotton) was incorporated in 1967 as a public limited company. The comapny has a spinning unit engaged in the production and sale of yarn. Nagina Cotton is majorly (~87%) owned by Nagina Group, through group companies and sponsoring individuals. Followed by financial institutions (~2%) and the remaining stake rests with general public. Nagina Group – one of the oldest medium-sized textile houses in Pakistan – comprises three listed public limited companies – and six private limited companies.

Nagina Cotton’s board comprises nine members, with Mr. Shahzada Ellahi Shaikh as Chairman of the board. The board includes five non-executive and three executive members – including the CEO and CFO, while one director is independent. The CEO, Mr. Shaukat Ellahi, is associated with the company since its inception.