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The Pakistan Credit Rating Agency Limited
Press Release

Date
12-May-20

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 Assigns Initial Entity Ratings to Masood Spinning Mills Limited with 'Rating Watch'

Rating Type Entity
Current
(12-May-20)
Action Initial
Long Term BBB+
Short Term A2
Outlook Stable
Rating Watch YES

Masood Spinning Mills Limited (‘Masood Spinning’ or ‘The Company’) is a private limited company. The Company is part of Mahmood Group, one of the premier textile conglomerates in the country. The Company is engaged in manufacturing of variety of yarn. The ratings reflect strong growth in revenues witnessed in recent years on the back of currency devaluation (revenue predominantly comprises exports) and continuous BMR. The Company's margins have improved recently though remained below par when compared with peers. Recent outbreak of COVID-19 has impacted the business profile of the Company like all export oriented spinning units. Capacity utilization is low as orders are deferred by buyers. Financial risk of the Company remains stretched given high leveraging and adequate core debt service coverages. Some relief will come from recent rate cut of 425bps and other SBP measures but cashflows are expected to remain under duress. The Company's association with Mahmood Group and vast experience of sponsors remain important rating factors.
The Rating Watch signifies the prevailing uncertainty due to the outbreak of COVID-19 pandemic. This has impacted the entire textile chain due to the lockdown in Pakistan and major export destinations of the sector. The demand is expected to contract while the eventual resumption of operations and recovery of the sector remains uncertain. The Company's operations and orders have suffered consequently. The Government and SBP have announced several initiatives to provide support. PACRA is closely monitoring the situation and will take rating action accordingly.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. The management is cognizant of these challenges and working on this front. Meanwhile prudent working capital management and generating sustainable cashflows from core operations are important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings.

About the Entity
Masood Spinning is a venture of Mahmood Group, which was originally established in 1935, by entering the tannery business. Now the group has a presence in the 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 82,272 spindles come under Masood Spinning. Mahmood Group Sponsors cumulatively own 100% shareholding directly and through associated companies.

Overall control vest with seven board members, all of whom are from the sponsoring family. Mr. Khawaja Muhammad Younus is the CEO of the Company and has over four decades 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.