The Pakistan Credit Rating Agency Limited
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Ahmad Saad Siddiqi

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PACRA Maintains Entity Ratings of Mekotex Limited, Outlook 'Stable'

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

The ratings highlight the Company's good business profile reflected by growing revenues and profitability in recent years. The ratings incorporate strong business acumen of sponsors, making Mekotex group a vertically integrated textile unit. The Company is a composite unit of textile with diversified products mainly denim & greige fabric. The Company has adequately invested in BMR and expansion projects to remain competitive through technological upgrades. This has helped in capturing growing demand in the local market, while export markets are pitched through group businesses – Kam International and Kam Apparel. Recovery from the impact of COVID-19 pandemic resulted in subdued profits at the end of FY20. However, after the initial drawback of the pandemic, the Company bounced back by posting enhanced profitability during 9MFY21 as compared to FY20. Lower finance cost has also supplemented the profitability. Improved margins, in line with the positive industry dynamics, have assisted strengthening of business profile. The Company’s financial risk profile is characterized by high leveraging and good coverages. 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 country’s textile group exports have witnessed 9.06% growth during the first nine months (July-March) 2020-21 and remained at $11.35bln compared to $10.4bln during the same period last year.
The removal of 'Rating Watch' signifies the Company overcoming challenges faced by the COVID-19 outbreak. The entire textile chain had been impacted due to the initial lockdowns across the globe. However, with support from the Government and SBP’s several initiatives to provide aid, recent figures represent record numbers for the textile sector.
The ratings are dependent on the Company’s ability to maintain strong business profile and optimal capacity utilization amidst current circumstances. Meanwhile, careful management of financial obligations during and after the pandemic is imperative. Improvement in reporting mechanism and governance framework would be critical for the ratings.

About the Entity
Mekotex Pvt. Limited was incorporated in 1991. It specializes in denim fabric. In 1993, the Company also started producing fabric for home textile. Currently, the Company specializes in ginning, spinning, weaving: both denim and Greig fabric, processing and digital printing. The Company’s operations are supported by 4 ginning machines, ~110,000 spindles (spinning), 450 looms (weaving), and 5 digital printing machines. Mekotex is a family owned business with majority shares owned by three brothers, Mr. Ashraf Majeed (30%), Mr. Khalid Majeed (23%) and Mr. Shoaib Majeed (14%), while rest of the shareholding lies with other family members. The group has diversified itself into energy and water projects.
Mekotex's Board comprises 5 individuals, of which 3 are sponsors. The Company has recently inducted two independent non-executive directors on the Board. The overall management of the Company rests with the CEO, Mr. Khalid Majeed.

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.