The Pakistan Credit Rating Agency Limited
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Muhammad Adil Kaleem

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PACRA Maintains Entity Ratings of Nagina Cotton Mills Limited

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Nagina Cotton Mills Limited, incorporated in 1967 as public limited company, is the flagship company of the one of the oldest medium-sized textile group in Pakistan - Nagina Group. The ratings reflect Nagina Cotton's adequate business profile. The Company’s revenues are on growing trajectory over the years, a factor of continuous BMR translating into operational efficiencies and higher production volumes. Topline, during 9MFY20, grew ~19%, however, higher raw material prices and operating expenses, couple with increased finance cost led to reduced margins. Moreover, the Company's operations came to a halt for an entire week during the last quarter of FY20, as a result of the COVID-19 outbreak and nationwide lockdown imposed. The entire textile chain suffered due to lockdowns in Pakistan and internationally. Production resumed on 7th April, 2020; since the Government allowed export-oriented sector to recommence operations, which included Nagina Cotton Mills Limited. Meanwhile, the Company's financial profile is constrained by stretched working capital cycle and significantly high leverage with adequate coverages. Nagina Cotton's investment portfolio exposes the Company to market risk; which is evident from the portfolio performance during 9MFY20; due to pandemic induced volatility in stock market. Any significant losses booked against the investments may have an impact on the financial profile of the Company. The management’s ability to manage this risk is critical. Going forward, the Company's leveraging is expected to increase due to debt based BMR/Expansion. SBP's concessionary rates will be applicable on the incoming debt. The demand is beginning to recover, prompting price correction by market forces, which is allowing the yarn prices to gradually recuperate; both locally and internationally. Nonetheless, the likelihood of a second wave of pandemic is also lurking around; which is a cause of concern for a few countries around the world, while some other economies have reopened. The assigned ratings derive comfort from Nagina Cotton’s association with Nagina Group.
The ratings are dependent on the Company’s ability to generate sufficient cash flows to fulfill its financial obligations, while sustaining profitability under the current, pandemic-led, economic slowdown. At the same time, prudent management of investment portfolio is also critical.

About the Entity
Nagina Cotton Mills Limited (Nagina Cotton) was incorporated in 1967 as a public limited company. The Company has a spinning unit engaged in the production and sale of yarn. Nagina Cotton is majorly (~83%) owned by Nagina Group, through group companies and sponsoring individuals. The remaining shareholding rests with financial institutions and general public. Nagina Group is one of the oldest medium-sized textile houses in Pakistan. The Group has three listed public limited companies and six private limited companies.

The Company's board comprises of ten members, with Mr. Shahzada Ellahi Shaikh as Chairman of the board. The board includes five non-executive and two executive members – including the CEO, while three directors are independent. In January, 2020, Mr. Amin Ellahi Shaikh replaced his uncle; Mr. Shaukat Ellahi Shaikh as the CEO of Nagina Cotton. Mr. Amin Ellahi has ten years of experience in textile sector, working in non-executive roles on the boards of other group companies.

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.