PACRA Maintains Entity Ratings of Liberty Mills Limited
Liberty Mills’ ratings reflect diversity in revenue stream emanating from textile business topped up with non-core recurring income from investments. The holding company structure of the entity strengthens its profile; investment book constitutes ~53% of the equity base and related income has historically provided a significant buffer to the bottomline. Strategic holding in IPP – Liberty Power Tech – has reaped strong dividends, though showing recent decline due to ongoing liquidity issues in the power sector resulting from stuck up receivables from GoP. Over the years, the Company has built a sizeable trading portfolio which exposes it to market risk exhibited by recent volatility in the stock market. Liberty Mills, a family-owned textile company, operates in the value-added textile segment - processing of fabric and manufacturing of madeups - which insulates it against volatility in cotton prices. The Company focuses on its established niche of quality-conscious institutional buyers. Although this has led to customer concentrations, longevity of relationship with big-name clients in addition to sustained quality helps manage the risk. The currency devaluation has benefited the Company’s export-oriented revenues while business margins have recently shown improvement. Meanwhile, the Company’s financial risk profile remains strong, characterized by moderate leveraging, healthy cash flows, and, in turn, strong debt-servicing ability. Working capital cycle remains stretched, mainly due to increased raw material procurement foreseeing currency devaluation, the positive impact of which is visible in the bottomline. Long association of experienced management team adds comfort. Governance framework needs improvement.
Going forward, Liberty Group - the sponsor - intends to expand its industrial footing with a diversification philosophy. A number of medium and long term projects are underway at group-level including (i) Pakistan Aluminum Beverage Cans Limited (PABC) (ii) Liberty Wind Power One (Pvt.) Limited (iii) Engro PowerGen Thar (Pvt.) Limited (iv) Pharmaceutical projects and (v) Hydro Power projects.
The ratings are dependent on the management's ability to sustain its margins while improving growth in revenue. Meanwhile, continued utilization of beefed-up capacities is considered important. Going forward, increase in business size, continuation of dividend/other income stream vis-à-vis solidification of governance framework will have positive implications on ratings.
Liberty Mills Limited, established in 1964, is in the business of manufacturing and processing of textile fabrics (capacity: 100mln meters) and made ups (stitching machines: 1,026 machines). The company is owned by the Mukaty family mainly through individuals. Liberty Group holds ~90% stake in Liberty Power Tech Limited (a 200MW thermal IPP) including ~29% through Liberty Mills.
Liberty Mills has an eight-member board. The CEO, Mr. Muhammad Salim Mukaty, also holds the office of Chairman. The Board comprises four directors from the sponsoring family and four executive directors. Director Mr. Muhammad Ashraf S. Mukaty - son of Mr. Salim Mukaty - oversees daily operations. Mr. Ashraf is supported by an experienced management team.