PACRA Revises Entity Ratings of Maqbool Textile Mills Limited.

The rating decision of Maqbool Textile Mills Limited (“the Company” or “MTML”) reflects its stressed business fundamentals, which adversely impact its business risk and financial risk profile. This is driven by consistent losses over the last three quarters, significantly eroding the Company’s equity and leading to liquidity constraints and a debt overhang. The Company is currently facing three key challenges: (i) an increase in yarn imports under the EFS scheme, leading to the underutilization of existing capacities due to reduced local demand in 1QFY25; (ii) reliance on short-term borrowings to bridge the funding gap, resulting in soaring finance costs; and (iii) escalating energy tariffs. However, the Company's management anticipates gaining momentum in the coming quarters, primarily driven by the installation of a 3-megawatt solar power plant as part of its renewable energy initiatives, along with a continued decline in the policy rate. These factors are expected to provide relief from the ongoing financial squeeze. The two companies primarily operate under the umbrella of the Maqbool Group which includes (i) Mehmooda Maqbool Mills Limited and (ii) Maqbool Textile Mills Limited. The Company product slate and revenue streams primarily divest into four categories which include CVC yarn, PC yarn, PV yarn, and PP yarn. During FY24, MTML recorded 4.8% topline growth, primarily driven by increased production and sales of 30s-count yarn. However, in 1QFY25, the Company's sales declined to PKR 1.76bln (1QFY24: PKR 3.18bln) due to a drop in local yarn demand, as imports served as a substitute, coupled with unfavorable pricing dynamics. Energy costs represent the primary risk factor for the sustainability of the Company’s cost structure, as evidenced by an 83.16% increase in power and fuel costs, which significantly dilutes profitability. This is further compounded by finance costs of PKR 767mln, resulting in a net loss of PKR 698mln. The Company's financial risk profile is negatively affected by a deterioration in its credit quality metrics. MTML needs to rationalize its funding structure by securing an equity injection from its sponsors and implementing a strategic plan to strengthen its business fundamentals, ensuring its continued competitiveness. Textile exports reached USD 16.7bln in FY24, up 0.93% YoY from USD 16.5bln. The composite and garments segment led with USD 9.1bln, followed by weaving at USD 6.5bln and spinning at USD 1.0bln. In 5MFY25, exports stood at USD 7.6bln.
The ratings are dependent upon the Company’s ability to improve its performance in terms of business volumes and core profitability from operations. Maintaining optimal capacity utilization, generating sufficient cash flows, and improving coverage ratios remain critical to the ratings. An equity injection from sponsors is essential to alleviate cash flow strain. The adherence to the debt matrix at an adequate level is a prerequisite for the assigned rating.

About the Entity
MTML, incorporated in 1989, is a public listed Company. The Company has an installed capacity of 82,224 spindles and 576 MVS spindles. MTML is primarily owned by the Maqbool family (75.20%) and others (24.8%). The board comprises ten members. Out of this, four directors are non-executive, three directors occupy executive roles, and three directors are independent. Seven board members represent the Maqbool family. Mr. Mian Tanvir Ahmed Sheikh, the CEO, carries with him extensive experience in the textile sector and is supported by an experienced management team.