PACRA Assigns Preliminary Rating to Masood Spinning Mills Limited | PPSTS | PKR 3.0bln | TBI

The ratings of Masood Spinning Mills Limited (“MSML” or “the Company”) reflect its adequate positioning in Pakistan's spinning industry. The assigned ratings take comfort from the Company’s association with the Mahmood Group - the sponsoring group. The Company's principal activity is the manufacturing and sale of yarn and socks. The Company aims to grow by sustaining its core business, diversifying into new business segments with attractive margins, and implementing good governance for the organization's long-term sustainability. This is evident from the commercialization of its new socks unit, which is now fully operational, as a part of its business diversification strategy to broaden its product offerings in the international market for better product margins and favorable product pricing. MSML management is anticipating a notable contribution to its topline by the end of FY25. The Company's topline declined to PKR 15.3bln in 1HFY25 from PKR 18.6bln in 1HFY24, primarily due to a strategic shift aimed at capitalizing on the growing demand for coarse yarn. This shift reflects adequate product price dynamics, while the downward trend in international cotton prices led to a decline in yarn prices. For optimization of the overall cost structure, the management has already installed a ~11 megawatt solar, which is operational. This has benefitted the Company’s bottom line and secured a net profitability of PKR 107.3mln (1HFY24: PKR 207.1mln). The Company has sizeable working capital facilities, available from financial institutions, of which room is available as per management’s representations. The working capital cycle on the spinning side is adequate, while it is slightly more efficient on the socks side. The cash flow coverages are in the manageable range. The intended sukuk issuance is being done with the dual aim of diversifying and strengthening the working capital funding base of the Company.
The rating of the instrument captures the strength of the security structure, primarily from the DPA (Debt Payment Account) mechanism placed under the lien of the investment agent. The DPA will start getting funded 60 days before maturity and continue fortnightly to ensure that the full issue amount is available in the DPA before maturity. The principal repayment and profit payment will be made as a bullet payment. The underlying instrument is secured by a ranking charge over the Company’s current assets with a 25% margin.

About the Entity
MSML is a public limited Company. The Group sponsors cumulatively own 100% shareholding directly and through associated companies. Overall control of the board vest with seven BODs.

About the Instrument
MSML is set to issue a Rated, Secured, Privately Placed, Short-Term Sukuk, tentatively carrying a markup rate of 6MK+0.75% with a tenor of 06 months. The Sukuk includes a call option feature, allowing the issuer to partially or fully redeem it with a five-day prior notice. This call option may only be exercised by the Issuer after 3 months from the Issuance date and once issued, the call option will be irrevocable. The purpose of the instrument is to finance the working capital requirements of the Company.