Tata Textile Mills Limited

CREDIT RATING REPORT | May-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
22-May-25 A A1 Stable Maintain YES
27-Jun-24 A A1 Stable Maintain YES
27-Jun-23 A A1 Stable Maintain -
30-Jun-22 A A1 Stable Upgrade -
18-Jan-22 A A2 Stable Initial -
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.

Rating Rationale

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.

Key Rating Drivers

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.

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

Tata Textile Mills Limited

rating analysis

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Profile
Legal Structure

Tata Textile Mills Limited (‘Tata Textile’ or ‘the Company’) was incorporated in 1987 as a public limited company under the repealed Companies Ordinance, 1984 (now called the Companies Act, 2017). The Company's shares trade on the Pakistan Stock Exchange (PSX) with a symbol of TATM.


Background

During the 80s, Tata Pakistan took over the management of Island Textile Mills Limited and Salfi Textile Mills Limited and gained recognition in the spinning segment. Later, Tata Textile was established, and during 2020-21, Salfi Textile Mills, Island Textile Mills, along with Tata Energy, were merged with and into Tata Textile. 


Operations

The Company is engaged in the manufacturing and selling of different varieties of cotton yarn. The Company has six manufacturing units with a cumulative installed capacity of 127,092 spindles. The Company's registered office is located in Karachi. The manufacturing units are located in Karachi, Kotri & Muzaffargarh.


Ownership
Ownership Structure

Major (~ 76.4%) shareholding of the Company vests with the Sponsoring family, out of which Mr. Shahid Anwar Tata and Mr. Adeel Tata holds ~51.5% and ~8.2% stake, respectively. The remaining stake resides with the Public sector and companies and corporations (~6.2%), mutual funds (~5.2%), and the general public (~12.1%).


Stability

The Company's ownership structure is expected to remain stable as the Sponsors. The third generation is gradually inducted into the business with defined roles and responsibilities; however, a formal succession plan needs attention.


Business Acumen

The Sponsors hold decades of related experience and have witnessed numerous business cycles. This bodes well for the overall decision-making process for the Company.


Financial Strength

Requisite oversight and financial support from the Sponsors ensure the Company's financial strength.


Governance
Board Structure

The Company’s control vests with a seven-member Board (BoD), including the CEO. The BoD comprises two Executive Directors, including the CEO, two Non-Executive Directors, including a female Director, and three Independent Directors. The BoD holds considerable independence and gender diversity.


Members’ Profile

Mr. Mazhar Valjee chairs the BoD with over three decades of professional experience. Mr. Farooq Advani, an Independent Director, is a seasoned finance executive with 49+ years of leadership in financial management, strategy, and corporate governance across multiple industries. The BoD possesses diversified expertise and has a long-standing association with the Company.


Board Effectiveness

The BoD gathers support from two sub-committees, Audit and Human Resources. During FY24, the BoD met five times, while the Audit and HR Committees met on a quarterly and semi-annual basis, respectively. All meetings were held with a majority attendance.


Financial Transparency

The Company has appointed M/s. Yousuf Adil, Chartered Accountants, as the external auditors. The firm has expressed an unqualified opinion on the Company's financial statements for the year ended June 24. The firm is QCR rated and is among the category "A" listed auditors of the SBP's Panel.


Management
Organizational Structure

The Company operates through Operations, Sales and Marketing, Supply Chain, Procurement/Sourcing, Admin & Security, Legal, Finance, HR, and IT. All departmental Heads, except the CFO, report to the COO, who reports to the CEO. The CFO reports to the CEO and to the BOD. The CEO, in concert with the BoD, makes pertinent decisions. However, the Heads of Internal Audit and HR report functionally to the respective BoD committee and administratively to the CEO.


Management Team

The CEO, Mr. Shahid Anwar Tata, has over 4 decades of professional experience. The CFO, Mr. Zaid Kaliya, has over two decades of professional experience. He has been associated with the Company for three years. They are supported by a team of experienced professionals.


Effectiveness

Management's decision-making process is managed through monthly meetings of all departmental Heads. Performance reviews of all units are conducted during these discussions. However. there is no formal management committee in place.


MIS

Tata Textile has deployed a cloud-based Oracle Fusion ERP, an integrated solution for all MIS requirements. The Company has a formal reporting mechanism to address management’s needs, comprising daily, weekly monthly reports through data analytics & dashboard.


Control Environment

Tata Textile's plant is connected with the head office through VPN, thereby reporting on a real-time basis. Moreover. Tata Pakistan is ISO-9001 compliant, whereas Tata Textile is also awarded OEKO Tex Standard 100 Certifications and a Cotton USA License. The Company has placed an in-house internal audit function to monitor the policy formation and implementation process. This bodes well for the Company.


Business Risk
Industry Dynamics

Pakistan's spinning industry is highly fragmented and consists of ~368 dedicated spinning units with an estimated size of ~PKR 895bln and ~13.4mln spindles installed as of FY24. The projected cotton production estimate is revised and forecasted to be ~10.9mln bales, and as of 3MFY25, the production has reached up to ~1.4mln bales, which is ~12.8% of the projected production. During FY24, better local raw cotton yield supplemented the industry for import substitution, with domestic production of ~8.4mln bales constituting ~75.5% of the total supply. In comparison, imports shrank to ~10.8% of the total supply (~1.2mln bales). 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

The Company holds an installed capacity stands at 127,092 spindles and stands among medium-tier players of the industry.


Revenues

The Company generates revenue from both local (~22.65%) and export including indirect export (~77.35%) sales. During FY24, the Company reported an uptick of ~31% in revenue to PKR 45,824mln (FY23: PKR 34,911mln) primarily due to a significant increase in export sales. However, during 9MFY25, the Company reported a ~8.4% decline in revenue (9MFY25: PKR 32,409mln, 9MFY24: PKR 35,380mln) attributable to reduced demand. Going forward, revenue is expected to remain stable.


Margins

During FY24, overall margins showed a significant decline. Gross margins dropped to ~7.3% from ~12.2% during FY23, primarily due to high raw material costs and significantly higher energy costs. The Company's net profit margin during FY24 was ~-1.5% (FY23: ~0.7%). During 9MFY25, the gross margin was ~6.1% (9MFY24: ~7.9%), while the net margin was ~1.2% (9MFY24: ~-2.2%). Margins are expected to remain at an adequate level.


Sustainability

Going forward the Company will be procuring raw material from both local and international market as imported cotton has better yield and quality, which will reduce borrowing costs and improve profitability, thereby resolving the losses that are impacting liquidity. Additionally, the Company has initiated projects to enhance energy efficiency and improve treasury management. Moreover, as policy rates have reduced along with controlled inflation, the Company's business risk profile, including margins, may gradually pick up.


Financial Risk
Working capital

The Company’s working capital requirements primarily stem from maintaining raw material inventories to hedge against price volatility, cyclicality, and potential supply disruptions, as well as from financing trade receivables. These needs are met through short-term borrowings, which declined to PKR 9,391mln in FY24 (FY23: PKR 9,737mln), before increasing to PKR 11,571mln in 9MFY25. The Company’s gross working capital cycle was ~165 days in 9MFY25, compared to 145 days in FY24 and 181 days in FY23. During 9MFY25, short-term trade leverage stood at ~47% (FY24: 40%). These metrics reflect the Company’s prudent and effective management of working capital and trade assets, ensuring continued operational efficiency and financial resilience.


Coverages

The Company’s coverage ratios have been under pressure due to a sustained decline in profitability. In FY24, EBITDA decreased to ~PKR 3,010mln, down from PKR 4,409mln in FY23. Coupled with higher borrowing levels, this led to a reduction in the EBITDA-to-finance cost coverage ratio to 0.7x in FY24 (FY23: 1.7x). For 9MFY25, EBITDA stood at around PKR 1,762mln, compared to PKR 2,738mln in 9MFY24, resulting in a coverage ratio of 0.7x (9MFY24: 0.8x). Sustaining adequate coverage levels will be critical moving forward to ensure financial flexibility and resilience.


Capitalization

The Company’s equity base strengthened, supported by profit accumulation, reaching PKR 21,311 million as of 9MFY25 (FY24: PKR 20,933 million). Despite maintaining a solid equity position, losses in the prior year had a negative impact. The Company continues to operate with a moderately leveraged capital structure, with a debt-to-equity ratio of ~50% in 9MFY25 (FY24: ~45.7%). Going forward, the Company will sustain an adequate leveraging.
 
 

May-25

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Tata Textile Mills Limited

financial summary

(PKR mln)

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Mar-25
9M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 21,681 21,425 21,386 20,242
2. Investments 6,228 4,538 2,119 1,912
3. Related Party Exposure 0 0 0 0
4. Current Assets 27,701 18,431 22,698 15,930
a. Inventories 17,108 9,153 13,593 10,128
b. Trade Receivables 5,967 6,940 6,635 4,240
5. Total Assets 55,610 44,394 46,202 38,084
6. Current Liabilities 11,493 4,713 6,622 4,433
a. Trade Payables 1,765 626 349 256
7. Borrowings 21,481 17,586 16,840 10,696
8. Related Party Exposure 0 0 0 0
9. Non-Current Liabilities 1,325 1,162 1,361 1,389
10. Net Assets 21,311 20,932 21,379 21,567
11. Shareholders' Equity 21,311 20,933 21,379 21,567
B. INCOME STATEMENT
1. Sales 32,409 45,824 34,911 35,114
a. Cost of Good Sold (30,443) (42,486) (30,666) (27,060)
2. Gross Profit 1,966 3,337 4,245 8,053
a. Operating Expenses (854) (1,081) (1,045) (1,011)
3. Operating Profit 1,112 2,256 3,200 7,043
a. Non Operating Income or (Expense) 2,902 1,783 213 (835)
4. Profit or (Loss) before Interest and Tax 4,015 4,039 3,413 6,208
a. Total Finance Cost (2,846) (4,612) (2,705) (1,179)
b. Taxation (769) (95) (448) (586)
6. Net Income Or (Loss) 400 (669) 261 4,443
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 1,082 2,523 3,827 6,840
b. Net Cash from Operating Activities before Working Capital Changes (1,964) (1,871) 1,460 5,748
c. Changes in Working Capital (2,496) 2,252 (4,973) (4,916)
1. Net Cash provided by Operating Activities (4,461) 381 (3,513) 832
2. Net Cash (Used in) or Available From Investing Activities 516 (1,411) (2,268) (3,401)
3. Net Cash (Used in) or Available From Financing Activities 1,714 927 (552) 1,175
4. Net Cash generated or (Used) during the period (2,230) (102) (6,333) (1,394)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -5.7% 31.3% -0.6% 29.4%
b. Gross Profit Margin 6.1% 7.3% 12.2% 22.9%
c. Net Profit Margin 1.2% -1.5% 0.7% 12.7%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) -4.4% 10.4% -3.3% 5.5%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 2.5% -3.2% 1.2% 25.0%
2. Working Capital Management
a. Gross Working Capital (Average Days) 165 145 181 140
b. Net Working Capital (Average Days) 155 141 178 137
c. Current Ratio (Current Assets / Current Liabilities) 2.4 3.9 3.4 3.6
3. Coverages
a. EBITDA / Finance Cost 0.7 0.7 1.7 6.7
b. FCFO / Finance Cost+CMLTB+Excess STB 0.1 0.3 0.5 2.6
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) -4.6 -4.9 5.6 0.7
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 50.2% 45.7% 44.1% 33.2%
b. Interest or Markup Payable (Days) 193.5 58.9 81.5 0.0
c. Entity Average Borrowing Rate 19.0% 21.7% 17.0% 10.5%

May-25

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Tata Textile Mills Limited

rating scale

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May-25

www.pacra.com

Tata Textile Mills 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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May-25

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