PACRA Maintains Entity Ratings of KTM Leather Pvt. Limited

KTM Leather (Pvt.) Ltd (hereinafter referred to as ‘KTM’ or ‘the Company’) is primarily involved in manufacturing a variety of leather products, spanning all stages from rawhide to finished leather, sourced from both cow and buffalo hides. KTM's premium leathers are distributed worldwide and used in the production of bags, footwear, upholstery, belts, accessories, and various other leather-based industries. The ratings reflect the Company's enduring presence in the tannery industry, supported by its role as the foundation of Mahmood Group, a well-known industrial and commercial conglomerate. The Company operates in approximately ~56 countries and continues to forge enduring partnerships with international associates. The major potential export markets of the Company are China, Bangladesh, Singapore, Europe, and North America. The Company’s ownership is predominantly held by the sponsoring family members, who bring decades of extensive knowledge and experience in the tannery industry, along with a diverse range of expertise across various sectors. Pakistan's leather industry is divided into five key segments, with leather gloves making up ~35%, followed by apparel and clothing at ~30%, and tanned leather at ~17%, together accounting for ~82%. The country possesses a significant potential within the footwear sector and can receive benefits from the U.S.-China trade war and the GSP status for Europe. Overall, the performance of the leather sector in terms of exports declined by ~9% compared to FY23 and was recorded at USD 808.4mln. An in-depth analysis of the tanned leather segment reveals a substantial decline, with exports decreasing by ~18% (value-wise) in FY-2024. The industry's growth is restricted due to multifaceted challenges, such as a lack of technological advancements, skilled labor, and low-priced alternatives. However, a growing global population, rising fashion trends, and favorable exchange rates for exports offer opportunities. The Company can benefit by investing in value-added products. Margins depend on improving topline performance, and building a strong capital base is essential for future growth. During the review period, the Company’s topline declined by ~6% YOY, although KTM maintained its export levels without a significant decline. This reduction is primarily attributed to a strategic decrease in local sales in FY24, driven by challenges in local market recovery. Gross margins improved to 26% from 25%, but net profit margin was reduced to -1.4 % (FY23: 0.5%) due to an increase in borrowing cost. The financial risk profile of the Company is considered modest with dwindling coverages, cashflows, and working capital cycle. KTM’s capital structure is leveraged, encompassing short-term borrowings & modest equity.
The ratings are dependent on KTM’s ability to sustain its position amidst a conservative leather business environment and management’s ability for successful strategy execution pertaining to the manufacturing of high-fashion finished leather products. With the growth in KTM’s revenue, prudent financial performance and an effective liquidity profile shall remain imperative.

About the Entity
KTM was established in 1935. Mr. Khawaja Muzaffar Mahmood laid the foundation of Mahmood Group by entering into tannery business, twelve years before the establishment of Pakistan. Ever since, the group has evolved as a diversified business empire by serving various industries. KTM’s ownership (~84%) directly lies with the sponsoring family, while the remaining (~16%) is laid by an associated Company, ‘Masood Model Ginning Factories (Pvt.) Ltd’. Mr. Ilyas holds the position of Chairman, and his son, Mr. Mehr Ali, is the CEO. Both have decades of experience in the industry.