The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Ellcot Spinning Mills Limited

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

Ellcot Spinning Mills Limited, incorporated in 1988 as public limited company, is a part of one of the oldest medium-sized textile group in Pakistan - Nagina Group. The group has presence in local spinning and weaving sector through Nagina Cotton Mills Limited and Prosperity Weaving Mills Limited. The Company is engaged in production of cotton and blended yarn and operates with a spinning unit comprising 61,968 spindles. The ratings reflect Ellcot Spinning's improving business profile; as evident by increased profitability. During 9MFY21, the Company’s revenues increased by ~10% YoY, to stand at PKR 4.9bln on account of enhanced capacity utilization and concerted management efforts towards increased profitability. The Company largely caters to the needs of local market and it has developed a reputable clientele over the years. During the period, margins have improved along with increased net income of PKR 451mln. Improved profitability and reduced finance cost have strengthened the cashflows and the coverages. Moreover, the Company's reliance on short-term borrowings have decreased on account of better cashflows. However, the Company's capital structure possess modest leveraging. Prices have also improved on both local and international fronts recently along with increased demand. The Company is expected to benefit from these improved industry dynamics in the medium run. The assigned ratings derive comfort from Ellcot Spinning’s association with Nagina Group. Textile exports of the country recorded a double-digit increase of ~23% for FY21 to stand at USD 15.4bln as compared to USD 12.5bln in FY20 due to an increase in demand for textile products internationally, led by good recovery around the globe post-pandemic. Going forward, the textile sector’s outlook is expected to stay stable in the medium term where the demand for textile products is expected to increase. The probability of little attrition in demand remains on the horizon attributable to the outbreak of COVID-19 variants.
The ratings are dependent on the Company’s ability to increase business margins through operational efficiencies and product quality. Meanwhile, any significant deterioration of cashflows culminating in notable impact on the coverages may affect the ratings. Prudent management of investment portfolio is also critical.

About the Entity
Ellcot Spinning Mills Limited (Ellcot) was incorporated in 1988 as a public limited company. Ellcot is majorly (~71%) owned by Nagina Group, through group companies and sponsoring individuals. Ellcot's board comprises ten members out of which five members are non-executive and two members occupy executive director roles including CEO, while three directors are independent. Mr. Shahzada Ellahi Shaikh is the Chairman of board. The management team is headed by the CEO, Mr. Haroon Shahzada Ellahi Shaikh who holds a graduate degree. He is supported by a team of seasoned professionals, supplementing his expertise. Mr. Shafqat Ellahi Shaikh is the Executive Director. He is associated with Ellcot Spinning since its inception, he is well verse with the textile business and has strong business acumen.

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.