The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Ellcot Spinning Mills Limited

Rating Type Entity
(23-Sep-22 )
(24-Sep-21 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Ellcot Spinning Mills Limited, incorporated in 1988 as a public limited company, is a part of one of the oldest medium-sized textile groups in Pakistan - Nagina Group. The group has a presence in the local spinning and weaving sector through Nagina Cotton Mills Limited and Prosperity Weaving Mills Limited. The Company is engaged in the production of cotton and blended yarn and operates with a spinning unit comprising 62,400 spindles. The ratings reflect Ellcot Spinning's improving business profile; as evident by increased profitability. During 9MFY22, the Company’s revenue increased by 48% YoY to stand at PKR 7.9bln on account of enhanced capacity utilization and concerted management efforts towards profitability. The Company largely caters to the needs of the local market and it has developed a reputable clientele over the years. During the period, margins have improved along with an increased net income of PKR 1,185mln. Improved profitability has strengthened the cashflows and coverages. Moreover, the Company's reliance on short-term borrowings has enhanced. However, the Company's capital structure reflects modest leveraging. The financial risk matrix of the company has shown improvement over the years. The assigned ratings derive comfort from Ellcot Spinning’s association with the Nagina Group. During FY22, Pakistan's textile exports surged to $19.3bln (recording a growth of 26%). Exports grew owing to increased volumetric growth of (16% YoY) in the value-added segment, a steep rise in global demand, and record high cotton prices. Under the value-added category, the knitwear segment remained the top performer by posting 34% YoY growth in exports to $5.1 billion in FY22 due to a sharp rise in global demand, especially in the US and European countries. Other value-added segments such as ready-made garments, bed wear, and towel posted YoY growth of 29%, 19%, and 19% to $3.9 billion, $3.3 billion, and $1.1 billion respectively. However, a slowdown is expected in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries.
The ratings are dependent on the Company’s ability to increase business margins through operational efficiencies and product quality. Meanwhile, any significant deterioration of cashflows culminating in notable impact on the coverages may affect the ratings. Prudent management of investment portfolio is also critical. The equity base of the company is satisfactory and should be beefed up, going forward.

About the Entity
Ellcot Spinning Mills Limited (Ellcot) was incorporated in 1988 as a public limited company. Ellcot is majorly (~71%) owned by Nagina Group, through group companies and sponsoring individuals. Ellcot's board comprises ten members out of which five members are non-executive and two members occupy executive director roles including CEO, while three directors are independent. Mr. Shahzada Ellahi Shaikh is the Chairman of board. The management team is headed by the CEO, Mr. Haroon Shahzada Ellahi Shaikh who holds a graduate degree. He is supported by a team of seasoned professionals, supplementing his expertise. Mr. Shafqat Ellahi Shaikh is the Executive Director. He is associated with Ellcot Spinning since its inception, he is well verse with the textile business and has strong business acumen.

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.