PACRA Maintains Entity Ratings of Tata Textiles Mills Ltd.

Pakistan's spinning industry remains highly fragmented, with an estimated total size of ~PKR 775bln. The sector comprises around 368 dedicated spinning units, collectively boasting an installed capacity of ~13.4mln spindles as of FY24. Cotton production estimates have been revised to ~10.9mln bales; however, actual production reached only about 5.5mln bales, indicating an expected shortfall. For FY25, improved local cotton yields are anticipated to help reduce reliance on imports. Nonetheless, Pakistan’s imported cotton requirement has increased from roughly 3.5mln to 4mln bales for the current year. The recent hike in energy tariffs has further compounded challenges for the industry, impacting cash flow and liquidity. Despite some reduction in the financial charges, high working capital requirements have strained industry finances, leading to a 'Watch' status on outlooks.
Tata Textile Mills Limited ('Tata Textile' or 'the Company') maintains a strong position within Pakistan’s textile industry, ranking as one of the country's largest spinning mills. Following the merger of Salfi Textile Mills Limited, Island Textile Mills Limited, and Tata Energy Limited, the Company operates at an installed capacity of 127,092 spindles. The merger has reinforced its financial stability, resulting in a solid balance sheet. The Company caters to both domestic and international markets, with ~22.65% of its revenue generated locally and ~77.35% generated internationally. In FY24, Tata Textile experienced a notable ~31% increase in revenue, primarily driven by a significant uptick in export sales. However, during 9MFY25, revenue declined by ~8.4% due to reduced demand. Margins faced pressure as the Company largely utilized raw materials purchased at higher prices. Additionally, elevated energy costs further compressed the gross margins. Nonetheless, the recent reduction in interest rates has positively impacted the Company's profitability and supported the bottom line. The Company is gradually expanding its captive energy capacity through solar energy installations, aiming to improve the energy cost. On the financial risk front, the working capital cycle has elongated and is managed through short-term borrowing. Coverages are stretched. Despite these pressures, the Company's ratings are supported by a robust equity base and the experienced management team, whose long-standing leadership and strategic foresight bolster confidence. Moving forward, restoring healthy profit margins and enhancing profitability are key priorities. Strengthening coverage ratios and effectively managing working capital remains imperative.
The ratings are contingent upon the Company's ability to enhance business margins and attain consistent profitability, while keeping financial risk at a substantially low level. Effective management of short-term liquidity and maintaining adequate coverage ratios will continue to be crucial.

About the Entity
Tata Textile Mills Limited (‘Tata Textile’ or ‘the Company’), incorporated in 1987 as a public company, is engaged in the manufacturing and sale of different varieties of yarn. The Company is operating with a capacity of 127,092 spindles.
Major shareholding (~76.43%) of the Company resides with the Directors, their spouse, and minor children. The remaining shareholding resides with mutual funds (~5.19%), financial institutions (~6.23%), and the general public (~12.14%). The Board is chaired by Mr. Mazhar Valjee, while Mr. Shahid Anwar Tata is the CEO. They are assisted by an experienced team.