The Pakistan Credit Rating Agency Limited
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Ahmad Saad Siddiqi

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PACRA Maintains Entity Ratings of Mahmood Textile Mills Limited

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

The ratings reflect improving business profile of Mahmood Textile Mills limited (‘Mahmood Textile’ or ‘The Company’) – the flagship entity of Mahmood Group. Business operations comprise a spinning segment and two weaving units, with plans to further enhance the spinning segment and establishing a new apparel unit. Recently, the Company has gone through a change in ownership structure. One brother has effectively transferred all of his stake to the remaining three brothers, vacating his position in the Board of Directors. This change is consistent with the recent re-profile of Mahmood group. Rating watch has been removed attributable to enhanced net sales and sizable incline in net profitability. Sales mix remained dominated by healthy exports. Similarly, margins recorded favorable increase. The Company is engaged in the exports of yarn and greige fabric. Hence, does not qualify for the export refinance facility. Overall, financial profile of the Company remains stretched given highly leveraged capital structure and limited borrowing capacity. However, coverage witnessed improvement during 9MFY21. The Company has a sizeable investment portfolio, which is managed at the Group level. Although, the Company has invested in blue-chip stocks, high market risk exposes the Company to significant risks. The sponsor’s vast experience and the Company's association with Mahmood Group provides comfort to the ratings of the Company. Textile sector dynamics were prone to challenges posed by the third wave of the COVID-19 pandemic. The country’s textile group exports, however, have witnessed 9.06% growth during the first nine months (July-March) 2020-21 and remained at $11.35bln compared to $10.40bln during the same period last year.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. The management is cognizant of these challenges and is working on this front. Meanwhile prudent working capital management and generating sustainable cashflows from core operations are important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings.

About the Entity
Mahmood Textile Mills Limited, incorporated in 1970, is a family-owned business primarily engaged in the production and sale of yarn and greige fabric. The Company operates with 115,920 spindles and 196 looms. It is listed on The Pakistan Stock Exchange. Mahmood Group – sponsor – cumulatively holds over 90% stake via individuals and Group companies. The Group has interests in textile, ginning, leather, food, real estate, and power sectors.
Overall control of the Company vests with a eight-member BoD. Six board members belong to the sponsor family and two are independent directors. Management control also vests with Mahmood Group. Mr. Khawaja M. Iqbal – CEO – has more than four decades of textile experience. He is supported by a seasoned management team.

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.