PACRA Maintains the Entity Ratings of Meko Denim Mills Limited

The ratings of (“Meko Denim Mills Limited” or “MDML”) derive its rationale from its rapidly emerging business profile in the local denim industry, following the strategic segregation of its denim operations from Mekotex (Private). Limited. It operates as a vertically integrated unit engaged in all aspects of the textile value chain accompanied by a production capacity of ~17.0mln kgs of yarn, ~36.0mln meters of fabric, ~42.0mln meters of dyed fabric, and ~1.68mln pieces of garments per annum. The Company’s product slate comprises coarse yarn, denim fabric, denim jeans, and knit products in the garments category. The Company's top clientele consists of stable entities in both local and international markets. To ensure timely order execution and maintain product quality and characteristics aligned with client requirements, MDML has implemented an efficient production mechanism. During FY24, the topline was reported at PKR 17.02bln (FY23: PKR 1.06bln; 1QFY25: PKR 4.61bln), as MDML commenced commercial operations in FY23, with the gradual ramp-up of business volumes primarily reflected in FY24. The Company's business volumes are mainly concentrated in the local market, contributing 71.8% to total sales, driven mainly by the denim fabric segment and coarse yarn. It has now gradually expanded its footprint into the international denim and knit garments market to enhance product diversity and achieve business diversification. In terms of product category, denim fabric holds an apex position in the business valuation matrix of MDML. The Company has installed an ~8 megawatts power generation boiler which is operational, resulting in improved gross margin via optimizing the energy cost. To create a cushion in the Company cost structure, the management has planned the installation of a ~9 megawatts wind turbine during FY25; financed through conventional long-term borrowings. The Company’s bottom line has shown gradual improvement during FY24 reported at PKR 427mln (1QFY25: PKR 145mln). The Company mainly fuels its working capital needs through short-term borrowings. The Company maintains a leveraged capital structure with an adequate working capital cycle. Looking ahead, the improvement in the coverages and borrowing capacity remains essential. The management has achieved its targeted production capacity during the preceding years and intends to pursue no further expansion in the current interest rate scenario.
The ratings are dependent upon the Company’s intact business operations and draw comfort from the sponsor’s profile. Improvement in coverages, sustainability of margins, and sufficient generation of cash flows from core operations remains vital. Adherence to the debt matrix at an optimal level is a prerequisite for assigned ratings.

About the Entity
Incorporated in 2021, Meko Denim Mills (Private). Limited, a business of Mekotex Group, operates as a comprehensive denim producer within the textile industry. Currently, the Company is actively involved in the entire denim production process, encompassing spinning, weaving, and processing of denim fabric. The Company’s operations are supported by 44,000 spindles, 234 looms, 2000 rotors, and 500 stitching machines. MDML is a family-owned business and the entire stake rests with Mr. Shoaib Majeed, Mr. Khalid Majeed, and Ms. Kiran Bano. The Company’s major stake is owned by Mr. Shoaib Majeed (55%) and his wife, Ms. Kiran Bano (20%). The remaining 25% stake is held by Mr. Khalid Majeed. The Company’s board comprises five members, including three sponsors and two non-executive directors. The overall management of the Company rests with the CEO, Mr. Shoaib Majeed.