The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Maintains Entity Ratings of Maqbool Textile Mills Limited

Rating Type Entity
Action Maintain Initial
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Maqbool Textile Mills Limited's (Maqbool Textile) track record and association with Maqbool Group, an established group with presence in textile and seed oil extraction industry. Despite challenging textile industry dynamics, Maqbool Textile managed to maintain its capacity utilization. The commoditized nature of spinning products keeps margins in check due to strong competition in local and international markets. Sales volume declined in 1QFY19, however these are expected to normalize in near future. Recent withdrawal of custom duty and sales tax on cotton imports, coupled with subsidized gas rates for textile industry has made the local textile industry cost competitive. On standalone basis better industry dynamics may nourish the Company's margins, and eventually better cash flows generation to settle debts related obligations. The Company’s margins remain on the lower side when compared with peers resulting in relatively subdued profitability. Maqbool Textile is in process of capacity enhancement for fixed cost optimization and better efficiency. The financial profile of the company is constrained due to high leverage and adequate coverages. The debt structure is skewed towards short-term borrowings, which may lead to the asset-liability mismatch.

The ratings are dependent upon the management's ability to improve margins, profitability and financial profile of the Company. This includes avoiding any asset-liability mismatch that may arise and effectively managing its position in a competitive segment. Any deterioration in debt coverages leading to higher financial risk or subdued profitability will have a negative impact on ratings.

About the Entity
Maqbool Textile Mills, incorporated in 1989, is a listed company engaged in manufacturing and sales of different varieties of yarn. The Company operates three spinning units installed at Muzzafargarh (units I and II) and Tobatek Singh (Unit III), having a total capacity of 70k+ spindles. The Company is primarily owned by Maqbool family (72.5%), followed by National investment (9.9%), financial institutions and the general public (17.6%). Maqbool family has interests in other textile mills and in seed oil extraction business.

The board comprises seven members. Out of this, two directors are non-executive, three directors occupy executive role, while two directors are independent. Five board members represent Maqbool family. Mr.Anis Ahmed Sheikh, the CEO, carries with him extensive experience in the textile sector and is supported by an experienced 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.