Analyst
Ayesha Qasim
ayesha.qasim@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-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.