The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Maintains Entity Ratings of Masood Fabrics Limited, Assigns 'Rating Watch'

Rating Type Entity
(26-Jun-20 )
(27-Dec-19 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

The ratings reflect adequate business profile of Masood Fabrics Limited (‘Masood Fabrics’ or ‘The Company’) emanating from growth in revenues and stable margins. 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 due to increase in topline, despite higher finance cost. The Company had to face a brief shutdown of its operations in line with the provincial Government’s directive of lockdown. Impact of shutdown and general contraction in demand amid tough economic climate will become clearer in months to come. The Company has built a significant investment portfolio that is managed at the group level. Overall profitability of the Company remains a function of income from its sizable investment portfolio, in shape of dividends and capital gains/losses. Although the Company is invested in blue-chip scrips, high market risk exposes the Company to volatile returns. This concern is magnified as the investments are partially financed through short-term borrowings. Recent volatility in equity market enhances the element of risk in the Company’s investment portfolio as valuations may decrease. The Company's Cashflows have recently shown a downward trend, resulting in drop in coverages, though deferral of principal repayments as per SBP initiative amidst Covid-19 will provide a breather. Moreover, the financial profile of the Company remains stretched given highly leveraged capital structure and limited borrowing capacity. Board’s vast experience and association with Mahmood Group provide comfort to the ratings of the Company.

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. Although lockdowns are being gradually lifted worldwide, the recovery in demand remains to be seen. The Company's operations and orders have suffered consequently as the Company has high reliance on exports in its sales mix. 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, sustaining margins and generating sustainable cashflows 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 presence in 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.