The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintain Entity Ratings of Masood Fabrics Limited

Rating Type Entity
(26-Apr-21 )
(26-Jun-20 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes Yes

The ratings reflect the adequate business profile of Masood Fabrics Limited (‘Masood Fabrics’ or ‘The Company’). The Company is part of Mahmood Group, one of the leading textile conglomerates in the country. The Company is principally engaged in the manufacture of yarn and greige fabric, primarily catering to the home textile market. The profitability of the Company improved in 1HFY21, due to an increase in the topline. The topline primarily consists of exports. During 1HFY21, Company’s gross and operating margins also witnessed a marginal decline. The Company has built a significant investment portfolio that is managed at the group level. The financial risk matrix remains adequate with high leveraging, declined coverages, and stretched working capital cycle has increased. EBITDA decreased so did FCFO and finance cost increases as a consequence, coverages deteriorated. Board’s vast experience and association with Mahmood Group provide comfort to the ratings of the Company. Going forward, the planned CAPEX is expected to bring in efficiency gains and improvement in margins. The Company is going through the process of a change in its shareholding which will be finalized over the course of some months. Upon finalization and thorough evaluation of the new shareholding structure, furthur updates will be made if deemed essential.

The outlook of the Company is 'stable' as the company resumed operations and continued its business fundamentals after the resumption of operations post-July 20. The Rating Watch signifies the prevailing uncertainty due to the third wave of COVID-19 prevailing in Pakistan and internationally. While the business continues to function, there is a need to remain vigilant. Textile industry dynamics are prone to challenges posed by pandemics. Exports front witnessed dilution in the first two months of CY21. The trend of export orders will determine stability in the sector’s outlook in the medium term.
The ratings are dependent on the Company’s ability to prudently manage the working capital cycle, sustaining margins, and generating sustainable cash flows from core operations is important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins may impact the ratings.

About the Entity
Masood Fabrics Limited 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 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.