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The Pakistan Credit Rating Agency Limited
Press Release

Date
26-Jun-20

Analyst
Muhammad Hassan
muhammad.hassan@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, Assigns 'Rating Watch'

Rating Type Entity
Current
(26-Jun-20 )
Previous
(27-Dec-19 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

The ratings reflect adequate business profile of Mahmood Textile Mills limited (‘Mahmood Textile’ or ‘The Company’) – the flagship entity of Mahmood Group. Business operations comprise a spinning segment and two weaving units. The Company witnessed decent growth in topline but its margins dropped due to increase in cost of production. The Company faced a brief shutdown of its operations in line with the provincial Government’s directive of lockdown. The impact of shutdown and general contraction in demand amid tough economic climate and lower exports will become clearer in months to come. The Company's cashflows have recently shown a downward trend and as a result, the coverages dropped, though deferral of principal repayments as per SBP initiative amidst Covid-19 will provide respite. Overall, financial profile of the Company remains stretched given highly leveraged capital structure and limited borrowing capacity. The Company has a sizeable investment portfolio, which is managed at the Group level. Although, the Company has invested in blue-chip stocks, market vicissitude exposes the Company to significant risks. This was witnessed recently as equity market remained volatile resulting in lower valuations. The sponsor’s vast experience and the Company's association with Mahmood Group provides comfort to the ratings of the Company.

The Rating Watch signifies the prevailing uncertainty due to the outbreak of COVID-19 pandemic. This has impacted the entire textile chain due to the lockdown in Pakistan and major export destinations of the sector. Although lockdowns are being gradually lifted worldwide, the recovery in demand remains to be seen. The Company's operations and orders have suffered consequently as the Company has high reliance on exports. The Government and SBP have announced several initiatives to provide support. PACRA is closely monitoring the situation and will take rating action accordingly.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. The management is cognizant of these challenges and is working on this front. Meanwhile prudent working capital management and generating sustainable cashflows from core operations are important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings.

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 greige fabric. The Company operates with 115,824 spindles and 196 looms. It is listed on The Pakistan Stock Exchange. Mahmood Group – sponsor – cumulatively holds over 90% stake via individuals and Group companies. The Group has interests in textile, ginning, leather, food, real estate, and power sectors.

Overall control of the Company vests with a seven-member BoD. Five board members belong to the sponsor family and two are independent directors. Management control also vests with Mahmood Group. Mr. Khawaja M. Iqbal – CEO – has more than four decades of textile experience. He 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.