Latif Textile Mills (Pvt.) Limited

CREDIT RATING REPORT | Jan-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
27-Jan-25 BBB- A2 Stable Maintain -
27-Jan-24 BBB- A2 Stable Maintain -
27-Jan-23 BBB- A2 Stable Maintain -
28-Jan-22 BBB- A2 Stable Initial -
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.

Rating Rationale

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.

Key Rating Drivers

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.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Latif Textile Mills (Pvt.) Limited

rating analysis

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Profile
Legal Structure

Latif Textile Mills (Pvt.) Limited (‘LTML’ or ‘the Company’) is a private limited concern incorporated in 1985. 


Background

Over the years, the Company has expanded its operations and developed expertise across the various processes in the manufacturing chain. The company has also stepped into the international market.


Operations

The Company is principally engaged in the manufacturing and sale of Yarn and Towels. LTML is operating with 7,104 spindles and 5,560 rotors, generating a total capacity of 9.9mln-Kgs per annum. The company has a facility for towel weaving with 128 terry looms, with a production capacity of 3.6mln-Kgs and 102 stitching machines. The total energy requirement of the company clocks in at 5.6 MW which is met completely through captive generation. Its production facilities are located in Nooriabad.


Ownership
Ownership Structure

The Company is owned by the families of three brothers, namely Mr. Younus Haji Latif, Mr. Junaid Haji Latif, and Mr. Amanullah Haji Latif (Late).


Stability

The operations are governed by the second generation of the family. Mr. Jawad Junaid s/o. Mr. Junaid Haji Latif is the CEO of the Company and Mr. Owais Amanullah s/o. Mr. Amanullah Haji Latif is Executive Director. The third generation of the family also has representation in the management with Mr. Ahfam Sohail (grandson of Mr. Younus) as a Technical Consultant. However, the establishment of a family constitution will augment the ownership profile of the Company. 


Business Acumen

The directors and management of the Company bring substantial expertise and extensive experience in the textile industry, having successfully managed the Company for 38 years. Under their leadership, the Company remains committed to its core philosophy of achieving sustainable growth while maintaining operational excellence and industry best practices.


Financial Strength

The sponsors of the Company do not have any major businesses apart from LTML. However, the sponsors hold an 11% shareholding in Gul Ahmed Energy (Rated A- by PACRA) and Mr. Ubaid Amanullah s/o. Mr. Amanullah Haji Latif is the COO of Gul Ahmed Energy. The sponsors of the Company are committed to supporting the Company in times of intricacy.


Governance
Board Structure

LTML, being a private limited company, has only two directors on the board - Mr. Owais Amanullah and Mr. Jawad Junaid, who also serves as CEO. Directors have been associated with the board for 13 years each. The governance framework of the Company reflects room for improvement and inclusion of independent oversight will enhance the governance profile of the Company. 


Members’ Profile

Mr. Owais Amanullah (Executive Director) is a Commerce Graduate and has been engaged with the industry for about 21 years. Mr. Jawad Junaid (CEO) is BSc. Honors in Management & Marketing from the University of Manchester. He graduated in 2004 and since then, he has been actively involved in key areas of business. 


Board Effectiveness

No formal board committees are formed, instead, members convene informally and frequently to discuss business development, and the Company's performance. The establishment of sub-committees will augment the board's effectiveness. 


Financial Transparency

Kreston Hyder Bhimji & Co. Chartered Accountants are the external auditors of the company. The auditor is listed in Category “A” of the State Bank’s panel of auditors. They have expressed an unqualified opinion on the financial statements of the company for the year ending June 30th, 2024.


Management
Organizational Structure

The Company's core management structure is comprised of four primary departments: Sales, Purchase, Accounts, and Mills Management. The Sales and Purchase departments are led by their respective directors, while the Accounts department is overseen by the Chief Financial Officer (CFO). The Mills Management function is under the leadership of the General Manager Mills. Each of these departmental heads reports directly to the Chief Executive Officer (CEO).


Management Team

Mr. Jawad Junaid, the Chief Executive Officer, holds a BSc. (Honors) in Management and Marketing from the University of Manchester, graduating in 2004. Since completing his studies, he has been deeply engaged in steering and managing the Company's business activities.  Mr. Suhail Younus possesses a Bachelor's degree in Business/Commerce from St. Lawrence and has over 33 years of experience in the textiles industry and overseas the overall affairs pertained to procurement. 


Effectiveness

LTML does not have established formal management committees. However, various reports pertaining to the Company's sales and inventory movements, as well as purchases and procurement activities, are prepared and submitted to senior management as required.


MIS

The Company has deployed Visual Basic 6.0, incorporating eight functional modules: (i) Accounts, (ii) Production, (iii) Sales, (iv) Purchase, (v) Payroll, (vi) Store, (vii) Sales Tax, and (viii) Income Tax.


Control Environment

The Company holds international compliance certifications, including BCI and the Global Recycle Standard. At the operational level, quality testing of cotton, yarn, and fabric is conducted in the laboratories of each unit. The internal audit function is governed by the CFO.


Business Risk
Industry Dynamics

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


Relative Position

LTML operates with a capacity of 7,190 spindles, 5,560 rotors, 128 terry looms, and 102 stitching machines, positioning the Company within low to mid-tier segment of the textile industry.


Revenues

During FY24, LTML achieved a topline of PKR 3,615 million (FY23: PKR 3,239 million), reflecting an increase of 11.8% attributable to the volumetric increase in the terry segment. Export revenues accounted for 53.5% of the total, with key markets including the USA, UK, and Italy. The remaining portion of sales was derived from the local market, primarily driven by the Company's spinning segment. 


Revenues
Margins

In FY24, the Company’s gross profit margin declined to 11.0%, as compared with the previous fiscal year's figure of 15.9%. mainly attributable to a sizable increase in energy costs as energy cost to sales ratio stood at 17.4% (FY23: 7.7%) Consequently, the operating profit margin experienced a decline, falling to 1.6% from 6.1% in FY23. The company's finance cost saw a moderate increase, reaching PKR 253mln in FY24 compared to PKR 214mln in FY23. Consequently, LTML recorded a loss in FY24 that stood at 179mln, with net margin clocked at -4.9% during the period (FY23: 4.4%).


Sustainability

In a move towards self-sufficiency, LTML intends to reduce its reliance on gas and WAPDA, opting for clean energy generation through the installation of 1.5MV of solar capacity, bringing the aggregate solar capacity at 2MV during FY24. Furthermore, as per the LTML's management presentation, the Company has achieved profitability in the four months of FY25. 


Financial Risk
Working capital

LTML’s net working capital days decreased during FY24 to 74 days (FY23: 123 days) driven by an increase in payable days (FY24: 66 days; FY23: 38 days). Short-term borrowings were decreased by 67.1% to PKR 305mln (FY23: PKR 929mln). The decline in the Company's trade assets and inclined trade liabilities is witnessed Therefore, Short-term trade leverage declined to 8.5% (FY23: 20.7%).


Working Capital Management
Coverages

During FY24, the interest coverage ratio inched down to 0.5x (FY23: 2.1x) whereas the debt coverage ratio decreased to 0.3x (FY23: 1.6x). The free cash flows (FCFO) sizably declined to PKR 114mln (FY23: PKR 451mln). The decline in cashflows is primarily attributable to the losses incurred during the period.


Coverages
Capitalization

During FY24, the Company’s leveraging stood at 19.0% (FY23: 39.8%). The total borrowings of the company declined sizably to PKR 450mln in FY24 (FY23: 1,181mln), majorly comprising the short-term borrowings. The Company recorded a total equity of PKR 1,919mln (FY23: 1,790mln Going forward, strengthening of equity base by generation of profits remains vital as this enhances risk absorption capacity.


Capital Structure
 
 

Jan-25

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Latif Textile Mills (Pvt.) Limited

financial summary

(PKR mln)

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Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 2,379 2,052 1,982
2. Investments 0 0 0
3. Related Party Exposure 0 0 0
4. Current Assets 1,411 1,869 1,277
a. Inventories 973 1,156 410
b. Trade Receivables 138 505 788
5. Total Assets 3,790 3,921 3,259
6. Current Liabilities 1,142 753 524
a. Trade Payables 840 470 211
7. Borrowings 450 1,181 1,061
8. Related Party Exposure 0 0 0
9. Non-Current Liabilities 279 197 214
10. Net Assets 1,919 1,790 1,460
11. Shareholders' Equity 1,919 1,790 1,460
B. INCOME STATEMENT
1. Sales 3,615 3,239 4,093
a. Cost of Good Sold (3,217) (2,725) (3,444)
2. Gross Profit 398 514 649
a. Operating Expenses (339) (316) (234)
3. Operating Profit 59 198 415
a. Non Operating Income or (Expense) 42 171 (34)
4. Profit or (Loss) before Interest and Tax 101 369 380
a. Total Finance Cost (253) (214) (118)
b. Taxation (27) (13) (42)
6. Net Income Or (Loss) (179) 142 220
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 114 451 413
b. Net Cash from Operating Activities before Working Capital Changes (142) 263 313
c. Changes in Working Capital 963 (364) (57)
1. Net Cash provided by Operating Activities 821 (100) 256
2. Net Cash (Used in) or Available From Investing Activities (77) (184) (287)
3. Net Cash (Used in) or Available From Financing Activities (338) 204 (67)
4. Net Cash generated or (Used) during the period 405 (81) (97)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 11.6% -20.9% 56.9%
b. Gross Profit Margin 11.0% 15.9% 15.9%
c. Net Profit Margin -4.9% 4.4% 5.4%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 29.8% 2.7% 8.7%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] -9.6% 8.7% 15.5%
2. Working Capital Management
a. Gross Working Capital (Average Days) 140 161 96
b. Net Working Capital (Average Days) 74 123 82
c. Current Ratio (Current Assets / Current Liabilities) 1.2 2.5 2.4
3. Coverages
a. EBITDA / Finance Cost 0.7 2.5 4.4
b. FCFO / Finance Cost+CMLTB+Excess STB 0.3 1.6 2.0
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) -1.3 1.0 1.2
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 19.0% 39.8% 42.1%
b. Interest or Markup Payable (Days) 51.8 81.2 100.6
c. Entity Average Borrowing Rate 27.2% 19.0% 11.8%

Jan-25

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Latif Textile Mills (Pvt.) Limited

rating scale

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Jan-25

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Latif Textile Mills (Pvt.) Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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  3. Conduct of Business
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Jan-25

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