Masood Spinning Mills Limited - PPSTS - PKR 3.0bln - TBI

RATING REPORT | May-26

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
21-May-26 A- A1 Stable Preliminary -
About the Instrument

MSML intends to issue a Rated, Secured, Privately Placed, Short-Term Sukuk of PKR 3,000mln (inclusive of a green shoe option of PKR 1,000mln). The purpose of the instrument is to finance the working capital requirements. It carries a markup rate of 1M Kibor+125bps with a tenor of six months.

Rating Rationale

The assigned ratings of Masood Spinning Mills Limited (“MSML” or “the Company”) are underpinned by the Company’s formidable presence within the competitive textile landscape. Over the years, the Company has strengthened its foothold through sustained operations and product diversification, meeting the requirements of its top clientele. The Company is engaged in the manufacturing and sale of multiple categories of yarn, fabric and socks. Lately, the Company has ventured into high potential socks segment, offering attractive margins. The socks segment offers a broader range of socks, including fashion wear, medicated socks, sports wear, and formal wear. This initiative was undertaken to capitalize on the rising demand for value-added products in the international market. The operational efficiencies in this unit have now been fully realized.

During 9MFY26, the Company achieved a topline of PKR 26.9bln (9MFY25: PKR 23.5bln). This growth was primarily driven by the management’s deliberate shift towards a more sustainable and profit-centric strategy, rather than a sole reliance on volume expansion. Consequently, the Company’s sales mix tilted towards the domestic market to reap benefits from the favorable product pricing dynamics. Additionally, the revenue from the socks segment demonstrated a notable growth. Margins remained largely intact, supported by the optimization of the overall cost structure via strategic investment in cost-efficient energy alternatives. These factors translated into improved net profitability, with PAT reaching PKR 369mln (9MFY25: PKR 189mln).

The Company maintains an adequate financial risk profile, with cash flow generation and coverage indicators remaining within manageable levels. Management remains cognizant of the elevated leverage position and has formulated a well-articulated strategy aimed at rationalizing debt levels over the medium term. In this regard, the Company is in the process of liquidating certain non-current assets and group-owned properties. Proceeds from these transactions are expected to support working capital requirements and gradually deleveraging the balance sheet.
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Key Rating Drivers

The preliminary ratings of the instrument derive strength from the underlying security structure, primarily anchored by the Sukuk Payment Account (“SPA”) mechanism established under the lien of the Investment Agent. The SPA will commence funding during the month preceding maturity through equal weekly contributions equivalent to one-fourth of the principal amount, thereby ensuring that the entire issue amount is available in the designated account at least two days prior to the maturity date. The principal and profit obligations will be settled through a bullet payment at the time of maturity. Furthermore, the instrument is also secured through a ranking charge over the present and future current assets of MSML, including all inventory, in addition to a cross-corporate guarantee extended by Mahmood Textile Mills Limited.

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

Masood Spinning Mills Limited - PPSTS - PKR 3.0bln - TBI


Rating Analysis

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Issuer Profile
Profile

Masood Spinning Mills Limited (“MSML” or “the Company”) was incorporated in Pakistan on July 20, 2000, as a public limited company under the repealed Companies Ordinance, 1984 (now the Companies Act, 2017). The Company is a business venture of the Mahmood Group, which has expanded steadily since its inception in 1935 and has evolved into a prominent industrial group. The Company operates three production units: Unit 1 and Unit 2, located in Kabirwala, Khanewal District, near the Company’s head office in Multan, and Unit 3, situated in Phool Nagar, Kasur District. Collectively, these units have an installed capacity of 103,845 spindles and 322 knitting machines. In recent years, the Company invested in a socks manufacturing unit to diversify its product portfolio, which has been operating at maximum capacity utilization since January 2025. The Company’s total electricity requirement of approximately 14.6 megawatts is met through captive power generation. In addition, backup power is available through connections with LESCO and MEPCO to ensure uninterrupted operations. To further optimize production costs, the Company has fully operationalized a 13.5-megawatt solar power project.


Ownership

The Company's major stake rests with the sponsors through individual holdings and associated companies. The sponsoring group maintains a clearly defined shareholding structure vested among the three brothers of the Khawaja family. Their mutual understanding and alignment on the operations of the group companies contribute to the overall stability of both the sponsoring group and the Company. However, the formal documentation of a succession plan would further enhance the clarity and stability of ownership. All three brothers bring extensive experience to the textile industry, each with over four decades of involvement in managing the group’s businesses. The third generation of sponsors is already actively engaged in the day-to-day operations of various group companies, supporting business continuity and future growth. The Company’s financial strength is underpinned by the strong financial backing of the sponsors. In addition to MSML, the Mahmood Group operates four other entities within the textile sector: (i) Multan Fabrics (Pvt.) Limited, (ii) MG Apparel, (iii) Cotton Ginning Factories, and (iv) Mahmood Textile Mills Limited. This diversified presence within the textile value chain demonstrates the sponsors’ strong capacity to support the Company, if required.


Governance

Overall control of the Board rests with six members from the sponsoring family. The inclusion of an independent director on the Company’s Board would further strengthen its governance framework. Mr. Khawaja Muhammad Ilyas, Chief Executive Officer, brings over four decades of experience in the textile industry and has held key positions in various local corporate bodies in Pakistan. The other directors possess expertise across multiple stages of the textile value chain, reflecting a well-balanced skill mix on the Board. In FY25, four BOD meetings were held with high attendance from the members. Meeting minutes are formally documented; however, there remains room for further improvement in this area. To support the Board in its oversight responsibilities, two sub-committees have been constituted: the Audit Committee and the Human Resource Committee. In line with high standards of transparency, M/s Shinewing Hameed Chaudhri & Co., Chartered Accountants, have been appointed as the Company’s external auditors. The firm is rated in Category “B” by the State Bank’s panel of auditors. The auditors have expressed an unqualified audit opinion on the financial statements for the year ended June 30, 2025.


Management

The Company operates primarily in two distinct divisions before delegating strategic decisions to a single overseeing body. At this highest level, the departments are as follows: (i) Audit, (ii) Taxation, (iii) HR and Administration, (iv) IT and ERP, (v) Export and Import, (vi) Purchase and Production, (vii) Corporate Affairs, (viii) Marketing, and (ix) Finance. The CEO, Mr. Khawaja Muhammad Ilyas, has over four decades of experience in the textile sector. He holds a directorship position on the board of various group companies. He is supported by a team of seasoned professionals. The management's responsibilities are clearly delineated. While the Company does not have formal management committees, it possesses a strong IT infrastructure and controls to support seamless operations. For comprehensive reporting, the Company has embraced digitalization and the principles of Industry 4.0 through the implementation of Oracle Fusion across all operational segments. The Company adheres to the latest quality assurance standards for the production and trade of yarn. On an operational level, samples of cotton and yarn are tested in the laboratories of each manufacturing unit.


Business Risk

A predominant portion of the Company's revenue is generated from local sales. In FY25, the Company's topline registered a year-on-year decline to PKR 31.2bln (FY24: PKR 36.2bln), primarily attributable to a strategic change amid unfavorable yarn pricing in the internataional market. The local sales were reported at PKR 22.3bln (FY24: PKR 24.9bln). Locally, the Company mostly sells to several big players in the respective industry. The top customers of the Company are well-established and stable entities: Gul Ahmed Textile Mills Limited, Orient Textile Mills Limited, Al Rahim Textile Industries Limited, Kohinoor Mills Limited, and Mustaqim Dyeing & Printing Industries (Pvt). Limited. The Company's top ten client concentration remained within a moderate range. The export sales also decreased to PKR 8.9bln (FY24: PKR 11.3bln), primarily due to intense competition from regional players. The export destinations of MSML include China, Bangladesh, Turkiye, Portugal, Germany, and a few others, reflecting a low geographic concentration risk. The Company's gross profit margin inched up (FY25: 14.0%; FY24: 13.8%). This was driven by the strategic investment in a solar project to curb the impact of higher energy tariffs. The gradual decrease in the interest rate provided a cushion to the bottom line alongside a reduction in taxation expense. The Company's bottom line posted a notable increase at PKR 352mln (FY24: PKR 148mln), with the net profit margin rising to 1.1% (FY24: 0.4%). In 9MFY26, the Company's topline illustrated a notable improvement at PKR 26.9bln (9MFY25:PKR 23.5bln). The Company's gross profit margin and net profit margin stood at 13.4% (9MFY25: 13.9%) and 1.4% (9MFY25: 1.1%).


Financial Risk

The Company finances its working capital requirements through a combination of internal cash generation and short-term borrowings. In 9MFY26, the net working capital cycle remained largely unchanged at 158 days (FY25: 159 days), while inventory levels remained optimal. Liquidity remains a key strength, with a current ratio of 5.5x (FY25: 6.1x) and free cash flows from operations of PKR 3.1bln (FY25: PKR 4.1bln). On the sustainability front, management plans to operate under a disciplined leverage management framework, anchored in cash generation through improved profitability, asset sales from the liquidation of group companies, and efficient working capital management. These measures are expected to support the deleveraging, liquidity enhancement, and long-term financial stability. The Company’s interest coverage and core operating coverage ratios remained moderate, although improvement in these metrics remains critical. The capital structure continues to be highly leveraged, with total leverage of 77.4% (FY25: 78.4%) following a slight reduction in total debt. Management is actively pursuing a prudent approach to reducing leverage, while the equity base strengthened to PKR 6.9bln (FY25: 6.5bln), supported by a positive bottom line.


Instrument Rating Considerations
About the Instrument

MSML intends to issue a Rated, Secured, Privately Placed, Short-Term, Musharaka based Sukuk Certificate of PKR 3,000mln (inclusive of a green shoe option of PKR 1,000mln). The proceeds of the instrument will be utilized to finance the Company’s working capital requirements. The Sukuk carries a markup rate of 1MK plus 125bps and has a tenor of six months. Both principal and profit will be repaid through a bullet payment at maturity.


Relative Seniority/Subordination of Instrument

The instrument shall be secured by a first-ranking charge over all present and future current assets of the Company, including all inventory. The facility is further subject to an additional covenant, a cross-corporate guarantee by Mahmood Textile Mills Limited (MTML).


Credit Enhancement

The Company will maintain a Sukuk Payment Account (SPA) with an Islamic commercial bank. Funding of the SPA will commence in the final month prior to maturity and will be made in four equal weekly installments (1/4 each). The Company will ensure that the full issue amount is deposited in the SPA two days prior to the maturity date.
 
 

May-26

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Masood Spinning Mills Limited - PPSTS - PKR 3.0bln - TBI


Financial Summary

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(PKR mln)


 Mar-26
9M		 Jun-25
12M		 Jun-24
12M		 Jun-23
12M
Management Audited Audited Audited
A. BALANCE SHEET
1. Non-Current Assets 11,079 12,272 12,725 8,899
2. Investments 1,334 896 901 1,084
3. Related Party Exposure 0 0 0 0
4. Current Assets 22,395 20,628 21,906 16,818
a. Inventories 11,877 10,286 10,195 8,513
b. Trade Receivables 5,936 5,663 4,905 4,928
5. Total Assets 34,808 33,795 35,531 26,801
6. Current Liabilities 4,066 3,390 5,052 2,574
a. Trade Payables 1,441 1,108 2,656 753
7. Borrowings 23,806 23,839 23,926 17,950
8. Related Party Exposure 0 0 0 0
9. Non-Current Liabilities 0 0 0 109
10. Net Assets 6,936 6,566 6,553 6,167
11. Shareholders' Equity 6,936 6,566 6,553 6,167
B. INCOME STATEMENT
1. Sales 26,990 31,255 36,274 31,938
a. Cost of Good Sold (23,385) (26,893) (31,278) (28,048)
2. Gross Profit 3,605 4,363 4,997 3,890
a. Operating Expenses (1,028) (771) (787) (809)
3. Operating Profit 2,577 3,592 4,210 3,080
a. Non Operating Income or (Expense) 0 90 150 356
4. Profit or (Loss) before Interest and Tax 2,577 3,682 4,360 3,437
a. Total Finance Cost (1,870) (2,958) (3,720) (2,410)
b. Taxation (337) (372) (491) (485)
6. Net Income Or (Loss) 369 352 148 542
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 3,120 4,178 4,769 3,380
b. Net Cash from Operating Activities before Working Capital Changes 1,295 954 1,268 1,380
c. Changes in Working Capital (1,434) (451) (2,945) (1,354)
1. Net Cash provided by Operating Activities (139) 503 (1,677) 27
2. Net Cash (Used in) or Available From Investing Activities 144 (383) (4,386) (3,297)
3. Net Cash (Used in) or Available From Financing Activities (33) (87) 5,975 3,277
4. Net Cash generated or (Used) during the period (28) 32 (89) 7
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 15.1% -13.8% 13.6% 0.0%
b. Gross Profit Margin 13.4% 14.0% 13.8% 12.2%
c. Net Profit Margin 1.4% 1.1% 0.4% 1.7%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 6.2% 11.9% 5.0% 6.3%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 7.3% 5.4% 2.3% 17.6%
2. Working Capital Management
a. Gross Working Capital (Average Days) 171 181 144 154
b. Net Working Capital (Average Days) 158 159 126 145
c. Current Ratio (Current Assets / Current Liabilities) 5.5 6.1 4.3 6.5
3. Coverages
a. EBITDA / Finance Cost 2.0 1.7 1.4 1.6
b. FCFO / Finance Cost+CMLTB+Excess STB 1.1 0.9 0.9 1.1
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 3.7 5.8 6.6 5.2
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 77.4% 78.4% 78.5% 74.4%
b. Interest or Markup Payable (Days) 103.9 81.7 91.1 104.8
c. Entity Average Borrowing Rate 9.9% 12.2% 17.2% 13.0%

May-26

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Masood Spinning Mills Limited - PPSTS - PKR 3.0bln - TBI


Rating Scale

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May-26

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Masood Spinning Mills Limited - PPSTS - PKR 3.0bln - TBI


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.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
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  4. Independence & Conflict of Interest
    1. PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA’s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity, and independence of its ratings. Our relationship is governed by two distinct mandates: i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship. (Chapter III; 12-2-(i))
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  5. Monitoring and Review
    1. PACRA monitors all the outstanding ratings continuously, and any potential change therein due to any event associated with the issuer, the security arrangement, the industry, etc., is disseminated to the market immediately and in an effective manner after appropriate consultation with the entity/issuer. (Chapter III; 17-(a))
    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
    4. PACRA engages with the issuer and the debt securities trustee to remain updated on all information pertaining to the rating of the entity/instrument. (Chapter III; 17-(d))
  6. Probability of Default
    1. PACRA’s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability). PACRA’s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA’s Transition Study available at our website. (www.pacra.com) However, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
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May-26

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Masood Spinning Mills Limited - PPSTS - PKR 3.0bln - TBI


Regulatory & Supplementary Disclosure

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Nature of Instrument Size of Issue (PKR) Tenor Security Nature of Assets Investment Agent
Rated, Secured, Privately Placed, Short-term Sukuk PKR 3,000mln (green shoe option of PKR 1,000mln) 6 months from the date of issue First Ranking charge over the present and future current assets of the Company and maintenance of SPA (sukuk payment account). Current Assets Pak Oman
Name of Issuer Masood Spinning Mills Limited
Issue Date (tentative) 21-Jun-26
Maturity 6 months after issuance
Profit Rate 1M Kibor + 125bps*

Masood Spinning Mills Limited | PPSTS | Repayment Schedule

Sr. Due Date Principal Opening Principal 1M Kibor* Markup/Profit Rate (1MK+1.25%)* Markup/Profit Payment* Principal Payment Total Principal Outstanding (closing)
PKR PKR
Issue Date 21-Jun-26 3,000,000,000 0 0 3,000,000,000
1 21-Dec-26 3,000,000,000 12.08% 13.33% 200,497,808 3,000,000,000 3,200,497,808 -
200,497,808 3,000,000,000 3,200,497,808 -
* Tentative

May-26

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