The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Assigns Initial Entity Ratings to Masood Fabrics Limited

Rating Type Entity
(30-Jun-18 )
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch -

The ratings reflect adequate business profile of Masood Fabrics Limited and its association with Mahmood Group. The company is principally engaged in the manufacture of yarn and griege fabric, primarily catering to the home textile market. The company has built a significant investment portfolio that is managed at the group level. The company witnessed growth in its topline and margins. However, net margins from core business operations remains low due to high expenses. Overall profitability of the company remains a function of income from the large investment portfolio, in shape of dividends and capital gains/losses. Although the company is invested in blue-chip scrips, high market risk exposes the company to volatile returns and valuations. This concern is magnified as the investments are partially financed through short-term borrowings. Liquidating investments in a down market remains a concern. Free Cashflows have recently shown improvement, resulting in better coverages. However, financial profile of the company remains stretched given highly leveraged capital structure and limited borrowing capacity. Board’s vast experience and association with Mahmood Group bodes well for the company.

The ratings are dependent on the company’s ability to improve financial profile by reducing leveraging through successfully divesting certain scrips. The management is working on this front and timely materialization of these initiatives is critical. Additionally, maintaining margins and improving profitability from core operations is important.

About the Entity
Masood Fabrics is a venture of Mahmood Group, which was originally established in 1935, by entering the tannery business. Now the group has presence in complete cotton chain (growing to finished products), tanneries, real estate, and food. Cumulatively the group operates ~300,000 spindles and ~850 looms, out of which 32,640 spindles and 244 looms come under Masood Fabrics. Mahmood Group Sponsors cumulatively own 97% directly via individuals and the remaining shareholding is owned through group companies.

Overall control vest with seven board members, all of whom are from the sponsoring family. Mr. Khawaja Muhammad Ilyas is the CEO of the company and has more than 35 years of experience in the textile industry. He is supported by a team of seasoned professionals who work under various sub-divisions to ensure efficiency.

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.