PACRA Maintains Entity Ratings of Latif Textile Mills (Pvt.) Ltd

The assigned ratings of Latif Textile Mills (Pvt.) Ltd (“LTML” or “the Company”) reflects its adequate business profile in the textile landscape. The Company specializes in manufacturing yarn and terry towels, utilizing both open-end and ring-spinning technologies for yarn production, along with end-to-end weaving and stitching facilities for towels. According to their management presentation, LTML currently maintains 100% capacity utilization and operates with a production facility of 7,104 spindles, 5,560 rotors, 128 terry looms, and 102 stitching machines. During FY24, the Company disposed of some old spindles and executed CAPEX by installing 1,600 new rotors, 24 terry looms, and 18 stitching machines. The delegation of authority matrix at LTML vests with the Board of Directors, as the sponsors assume the execution role, resulting in the Board lacking independent oversight. During FY24, the Company demonstrated growth of 11.6% YoY (FY24: PKR 3,615mln. FY23: PKR 3,239mln. The sales composition is predominantly export-oriented, primarily to the USA, as the Company expanded its product portfolio in the terry towel segment over the last two years and scaled down operations in the spinning segment due to a decline in demand and other sector-specific challenges. The Company’s gross margin experienced dilution due to a significant hike in gas/RLNG tariffs, which ultimately increased the energy cost-to-sales ratio to 17.5%. The contributing factor is the closure of the spinning facility during the last four months of FY24 due to subdued demand. However, according to LTML's management presentation, the facility has resumed operations and is now fully operational. The Company’s business-specific fundamentals remained under-stressed, affecting the bottom line and resulting in a loss after tax during FY24.. The Company is working on renewable energy projects, which are expected to optimize energy costs and create some cushion in the cost structure. The Company’s financial risk profile depicts room for improvement with adequate working capital management and coverages attributable to the decline in the Company’s cash flows. The Company operates with a low-leveraged capital structure of 19%. The textile exports of the country reached USD 16.7bln in FY24, a slight increase from USD 16.5bln in the previous year, reflecting a growth of 0.93% YoY. The highest contribution came from the composite and garments segment at USD 9.1bln, followed by the weaving segment at USD 6.5bln and the spinning segment at USD 1.0bln. During 5MFY25, the textile exports stood at USD 7.6bln. In FY25, the transition from the final tax regime to the normal tax regime is set to impact the profitability matrix of export-oriented units, with a 29% tax on profits and a super tax of up to 10%. The consistent decline in policy rates over the last two quarters, along with the anticipation of further reductions, is expected to provide a cushion in the financial metrics of the industry.
The ratings depend on the Company’s ability to improve profitability and coverages while prudently managing its working capital requirements, generating sufficient cashflows from core operations remains critical. The governance framework of the Company reflects room for improvement. Adherence to the debt matrix at an optimal level is a prerequisite for the assigned ratings.

About the Entity
LTML was incorporated in 1985 as a private limited company. The Company’s ownership solely lies with the sponsoring family where the families of three brothers namely Mr. Younus Haji Latif, Mr. Junaid Haji Latif, and Mr. Amanullah Haji Latif (Late) hold an equal shareholding of 33.33% each. The CEO, Mr. Jawwad Junaid, belongs to the sponsoring family’s overseas company operations and is assisted by an experienced management team.