PACRA Assigns Initial Ratings to Mahmood Textile Mills Limited - PPSTS - PKR 3.0bln – Mar-25

The ratings reflect the emerging business profile of Mahmood Textile Mills Limited (“MTML” or “the Company”) in the competitive textile landscape. This stems from its long history of operations in the textile value chain and its gradual transition as a truly vertically integrated unit. MTML is the flagship Company of the “Mahmood Group”. In segment-wise business contribution, the spinning segment remains the largest contributor, followed by the weaving and apparel segments. As part of its business strategy, each business vertical operates independently, and management evaluates the core performance of each vertical on an absolute basis. During 1HFY25, the Company's top line declined (1HFY25: PKR 27.71bln; FY24: PKR 66.58bln) due to a shift in the product mix from coarser count yarn to finer count yarn, along with a downward trend in international cotton prices, which led to a decline in yarn prices. However, the gradual decrease in the policy rate has provided some cushion to the profitability matrix, resulting in slightly improved net margins. The textile industry is grappling with several key challenges, including evolving global demand and consumption trends, alongside mounting pressures on price competitiveness. These pressures stem from a revision in the minimum wage, elevated energy tariffs, which despite a reduction, remain high in regional comparison, reliance on imported cotton due to an 18% GST on local procurement, and the looming imposition of a 29.0% reciprocal tariff on exports to the United States, currently deferred for 90 days. At present, the impact of tariffs on MTML is negligible due to its marginal business volumes in the US. Management’s strategic focus on diversifying the sales portfolio geographically and implementing a limit on single-party exposure to manage concentration risk has supplemented the Company’s sustainability profile. The Company's financial risk profile is considered adequate, with a slight improvement in working capital management. The Company maintained a highly leveraged capital structure with adequate coverages and cash flows. MTML has successfully issued a Sukuk on 18th March, 2025, to meet its intensive working capital requirements, structured under the Musharakah (Shirkat-ul-Aqd) arrangement, in accordance with Shariah principles, and it is certified by Al Hilal Shariah Advisors (Pvt.) Limited.
The rating of the instrument captures the strength of the security structure, primarily from the DPA (Debt Payment Account) mechanism maintained under the lien of the investment agent. The underlying instrument is secured by a ranking charge over the Company’s current assets with a 25% margin. Payments will begin 60 days before maturity and continue fortnightly to ensure the full issue amount is available in the DPA fifteen days before maturity. The principal repayment and profit payment will be made as a bullet payment.

About the Entity
MTML, incorporated in 1970, is a family-owned business primarily engaged in the production and sale of yarn, grey cloth, and garments. It is listed on the Pakistan Stock Exchange.

About the Instrument
MTML has issued a Rated, Secured, Privately Placed, Short-Term Sukuk, carrying a markup of 6MK+0.75% with a tenor of 6 months. Its purpose is to finance the working capital requirements. The Sukuk includes a call option feature, allowing the Company to prepay the entire outstanding amount by providing a seven-day prior notice to the Investment agent.