Analyst
Muhammad Hassan
muhammad.hassan@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Mahmood Textile Mills Limited
Rating Type | Entity | |
Current (28-Jun-19 ) |
Previous (28-Dec-18 ) |
|
Action | Maintain | Maintain |
Long Term | A- | A- |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | - | - |
The ratings reflect adequate business profile of Mahmood Textile – the flagship entity of Mahmood Group. Business operations comprise a spinning segment and two weaving units. Continuous BMR activities have led the Company to witness decent growth in topline in recent years, furthered in the current year due to installation of a new weaving unit. Due to recent devaluation of rupee, the Company has managed to improve gross margins; however, high finance cost have kept operating margins thin. The Company has a sizable investment portfolio which is managed at Group level. Although, the Company has invested in blue-chip stocks, high market risk exposes the Company to volatile returns and valuations, mitigated to some extent through diversification in investment mix. Recent volatility in the stock market, however, diminished portfolio performance and impacted the overall profitability. The concern magnifies as these investments are partially financed through short-term borrowings. Financial risk of the Company remains stretched given tight borrowing capacity and core debt service coverages. Free cashflows have shown improvement. This provided relief to the risk profile of the Company; sustainability of the same is important amidst rising interest rates. Association with Mahmood Group bodes well for the Company.
The ratings are dependent upon stability of business margins, prudent management of investment portfolio and financial profile. Better debt management, especially short-term borrowings, and improvement in core coverages is critical. Significant losses in investment portfolio, leading to lower profitability, and/or deterioration in coverages may impact the ratings negatively.
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 greige fabric. The Company operates with 109,008 spindles and 196 looms. It is listed on Pakistan Stock Exchange. Mahmood Group – sponsor – cumulatively holds over 90% stake via individuals and Group companies. The Group has interests in textile, ginning, leather, food, real estate, and power sectors.
Overall control of the Company vests with a seven-member BoD. Six board members belong to the sponsor family and one is an independent director. Management control vests with Mahmood Group. Mr. Khawaja M. Iqbal - CEO has more than four decades of textile experience. He is supported by a seasoned management team.