PACRA Maintains Entity Ratings of Nagina Cotton Mills Limited

The ratings reflect Nagina Cotton Mills Limited's improving business profile as depicted in better margins and profitability. The Company’s revenues are on growing trajectory over the years, a factor of continuous BMR translating into operational efficiencies and higher production volumes. Textile industry in general and spinning industry in particular suffer from low international commodity prices. Moreover, lower demand for cotton yarn from China owing to trade war with USA has suppressed the demand in international market. Similarly, imposition of sales tax in local market may slowdown sales. However, rupee devaluation and subsidized rates for gas and electricity has provided breather to local textile industry. These factors, coupled with consistent BMR in recent years has strengthen the business profile of the Company. Meanwhile, its financial profile is constrained by stretched working capital cycle, significant leveraging, in turn, higher finance cost eventually translating into adequate coverages. Going forward, the Company's leveraging is expected to increase due to debt based BMR, however, SBP's concessionary rates borrowing will insulate the financial risk profile of the Company. Nagina Cotton intends to gradually build a sizable investment portfolio. This, exposes the Company to market risk as exhibited by historic volatility in stock exchange. Meanwhile, the Company was able to limit its losses because of its 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 assigned ratings derive comfort from Nagina Cotton’s association with Nagina Group.
The ratings are dependent on the Company’s ability to generate sufficient cash flows to fulfill its financial obligations, while sustaining business margins. At the same time, prudent management of investment portfolio is critical.

About the Entity
Nagina Cotton Mills Limited (Nagina Cotton) was incorporated in 1967 as a public limited company. The Company 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. The remaining shareholding rests with financial institutions and general public. Nagina Group is one of the oldest medium-sized textile houses in Pakistan. The Group has three listed public limited companies and six private limited companies.

The Company'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.