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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Dec-18

Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Mahmood Textile Mills Limited

Rating Type Entity
Current
(28-Dec-18 )
Previous
(28-May-18 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect adequate business profile of Mahmood Textile – the flagship entity of Mahmood Group. Business operations comprise a spinning segment and two weaving units. Continuous BMR activities have led the company to witness decent growth in topline in recent years, furthered in the current year due to installation of a new weaving unit. Due to recent devaluation of rupee, the company has managed to improve gross margins; however, high expenses have kept operating margins thin. The company has a sizable investment portfolio which is managed at Group level. Although the company has invested in blue-chip stocks, high market risk exposes the company to volatile returns and valuations, mitigated to some extent through diversification in investment mix. Recent volatility in the stock market, however, diminished portfolio performance and impacted the overall profitability. The concern magnifies as these investments are partially financed through short-term borrowings. Financial risk of the company remains stretched given tight borrowing capacity and core debt service coverages. Free cashflows have shown improvement. This provided relief to the risk profile of the company; sustainability of the same is important amidst rising interest rates. Association with Mahmood Group bodes well for the company.

The ratings are dependent upon stability of business margins, prudent management of investment portfolio and financial profile. Better debt management, especially short-term borrowings, and improvement in core coverages is critical. Significant losses in investment portfolio, leading to lower profitability, and/or deterioration in coverages will impact the ratings negatively.

About the Entity
Mahmood Textile Mills Limited, incorporated in 1970, is a family-owned business primarily engaged in the production and sale of yarn and greige fabric. The company operates with 109,008 spindles and 196 looms. It is listed on Pakistan Stock Exchange. Mahmood Group – sponsor – cumulatively holds over 90% stake via individuals and Group companies. The Group has interests in textile, ginning, leather, food, real estate, and power sectors.

Overall control of the company vests with a seven-member BoD, dominated by the sponsor family: six family members, including CEO, and one independent director. Management control vests with Mahmood Group. Mr. Khawaja M. Masood - founder of Mahmood Group - is Chairman while his son, Mr. Khawaja M. Iqbal, is CEO. Both have more than four decades of textile experience. The CEO is supported by a seasoned management team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.