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The Pakistan Credit Rating Agency Limited

Date
15-Aug-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Haider Imran
haider.imran@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]

Related Research

  • Sector Study | Textile (Sep 16) [View]
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PACRA Assigns Initial Entity Ratings to Mahmood Textile Mills
 Rating Type Entity
Current
(15-Aug-2017)
 Action Initial
 Long Term A-
 Short Term A2
 Outlook Stable
 Rating Watch -

The ratings reflect adequate business profile of Mahmood Textile – flagship entity of Mahmood Group. The company operates in spinning and weaving segments. In recent years, in line with industry trends, revenues of the company witnessed declining trend led by fall in exports. The company managed to improve its margins – both gross and operating; however, high expenses resulted in lower operating margin. Overall profitability is a function of performance of the company’s large trading portfolio which is managed at group-level. Although the company is invested in blue-chip stocks, high market risk exposes the company to volatile returns and valuations. This concern magnifies as these investments are partially financed through short-term borrowings. Additionally, financial risk remains stretched given tight borrowing capacity and core debt service coverages. The company has recently shown improvement in its operational performance, which was further beefed-up by dividend income. This provided relief to the risk profile of the company; sustainability of the same is important. Association with Mahmood Group, and the board’s vast experience bodes well for the company.

The ratings are dependent on stability of business margins, and overall risk profile and returns of the investment portfolio. Uplifting of financial risk profile via improved core coverages would be ratings positive. Meanwhile, materialization of benefits for the textile sector, announced by the state, would improve performance.
About the Entity
Mahmood Textile Mills Limited, incorporated in 1970, is a family-owned business primarily engaged in the production and sale of yarn and grey fabric. The company operates with 107,760 spindles and 100 looms. It is listed on Pakistan Stock Exchange. Mahmood Group (MG) - sponsors - cumulatively holds majority (~90%) stake via individuals and companies. MG has interests in textile, ginning, leather, food, real estate, and power sectors.

Overall control vests with a seven-member BoD, dominated by the sponsor family: six family members, including CEO, and one independent director. Management control vests with MG. Mr. Khawaja M. Masood - founder of MG - is Chairman, and Mr. Khawaja M. Iqbal is CEO. Both have more than four decades of textile experience. The CEO is supported by a seasoned management team.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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