The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Mekotex Limited

Rating Type Entity
(05-Aug-22 )
(06-Aug-21 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings highlight the Company's good business profile reflected by growing revenues and profitability in recent years. The ratings incorporate strong business acumen of sponsors, making Mekotex group a vertically integrated textile unit. The Company is a composite unit of textile with diversified products mainly denim & greige fabric. The Company has adequately invested in BMR and expansion projects to remain competitive through technological upgrades. This has helped in capturing growing demand in the local market, while export markets are pitched through group businesses – KAM International and KAM Apparel. Business operations comprise ginning, spinning, weaving and digital printing. During the year, Mekotex expanded and installed a new weaving unit in Kotri. Topline of the Company inclined sizably. Improved margins, in line with the positive industry dynamics, have assisted strengthening of business profile. Lower finance cost, on account of TERF and ERF obtained, has also supplemented the profitability. Consequently, the Company reported bottom-line of PKR 870mln in 9MFY22 (9MFY21: 493mln). The Company’s financial risk profile is characterized by high leveraging and good coverages. Working capital cycle improved considerably driven by lower inventory days. During 9MFY22 (Jul21-Mar22), Pakistan textile exports surged to $14.2bln (recording growth of 25%) as compared to $11.3bln in the same period last year. This is attributable to increase in demand for textile products internationally and channeling of export orders towards Pakistani market. On a YoY basis, the exports of raw cotton, cotton (carded or combed) and cotton cloth recorded notable growth. However, month on month basis, textile exports have declined by 3.5%. Going forward, the textile sector’s outlook is expected to stay good in the medium term where demand for textile products is expected to sustain.
The ratings are dependent on the Company’s ability to maintain strong business profile and optimal capacity utilization. Meanwhile, careful management of financial obligations is imperative. Improvement in reporting mechanism and governance framework would be critical for the ratings.

About the Entity
Mekotex Pvt. Limited was incorporated in 1991. It specializes in denim fabric. In 1993, the Company also started producing fabric for home textile. Currently, the Company specializes in ginning, spinning, weaving: both denim and Greig fabric, processing and digital printing. The Company’s operations are supported by 4 ginning machines, ~110,000 spindles (spinning), 641 looms (weaving), and 5 digital printing machines. Mekotex is a family owned business with majority shares owned by three brothers, Mr. Ashraf Majeed (30%), Mr. Khalid Majeed (23%) and Mr. Shoaib Majeed (14%), while rest of the shareholding lies with other family members. The group has diversified itself into energy and water projects. Mekotex's Board comprises 5 individuals, of which 3 are sponsors. The Company has recently inducted two independent non-executive directors on the Board. The overall management of the Company rests with the CEO, Mr. Khalid Majeed.

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.