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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-May-18

Analyst
Ayesha Qasim
ayesha.qasim@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Mahmood Textile Mills Limited

Rating Type Entity
Current
(28-May-18 )
Previous
(15-Aug-17 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect adequate business profile of Mahmood Textile – flagship entity of Mahmood Group. Majority of business operates in spinning segment, while operating a small weaving unit. Continuous BMR activities has led the company to witness decent growth in topline, in recent years. Company has managed to improve gross margins, however, high expenses keep operating margins thin. Overall profitability is a function of performance of the company’s large trading 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. Diversification in investment mix keeps the risk moderate though. The 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. Free Cashflows have recently shown improvement, which have been further beefed-up by dividend income and capital gains (though fluctuating). 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 117,072 spindles and 100 looms. It is listed on Pakistan Stock Exchange. Mahmood Group - sponsors - cumulatively holds majority (~90%) stake via individuals and companies. Mahmood Group 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 Mahmood Group - 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.