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The Pakistan Credit Rating Agency Limited
Press Release

Date
06-Aug-19

Analyst
Ateeb Riaz
ateeb.riaz@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 Maintains Entity Ratings of Mekotex (Private) Limited

Rating Type Entity
Current
(06-Aug-19)
Previous
(04-Feb-19)
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings highlight the Company's strong business prospects reflected by growing revenues and profitability. The ratings incorporate strong business acumen of the sponsors, making Mekotex group a vertically integrated textile unit. The Company is a composite unit of textile with diversified products like denim & greige fabric. Margins remain in-line with good players in the market. The Company has adequately invested in BMR and expansion projects to remain competitive and ensuring technological upgrades. This has helped in capturing growing demand in the local market, while export markets are pitched through group businesses – Kam International and Kam Apparel. The financial risk profile is relatively stretched, reflected by good coverages since cash flows from recent expansion are yet to fully materialize. Comfort is drawn from sponsors commitment and support, demonstrated in the form of interest-free loans and subscription of right issue. The financial matrix is expected to remain well managed.
Ratings are dependent upon sustenance of top line growth, capitalizing on ongoing BMR and expansion initiatives, and conversion in profitability. This, in turn, should benefit in better debt service coverage ratios. Improvement in reporting mechanism and governance framework would be critical for the ratings.

About the Entity
Mekotex Pvt. Limited was incorporated in 1991. It specializes in denim fabric. In 1993, the Company also started producing fabric for home textile. Currently, the Company specializes in ginning, spinning, weaving: both denim and Greig fabric, processing and digital printing. The Company sells products and offers services at all levels of the textile industry operations cycle. The Company’s operations are supported by 4 ginning machines, 111,000 spindles, 450 looms, and 5 digital printing machines. The Company is owned by three brothers: Mr. Khalid Majeed (36%), Mr. Ashraf Majeeed (36%) and Mr. Shoaib Majeed (28%), directly and indirectly through the family. Mr. Abdul Majid Qasim (late), the father of the family and founder of the group laid its foundation in 1979. Textile operations of the group are segregated into three businesses – Mekotex, Kam International (Home Textile) and Kam Apparel (Ready-made Garments), making it fully integrated vertical unit. The group has diversified itself into energy and water projects, generating a stable stream of income

Mekotex's Board comprises of 5 individuals, of which 3 are sponsors. The Company has recently inducted two independent non-executive directors on the Board. The CEO of the Company is Mr. Khalid Majeed who looks after the ginning, spinning and finance. Mr. Ashraf Majeed oversees the processing, marketing and procurement, while the youngest brother Mr. Shoaib Majeed specializes in denim, treasury and taxation.

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.