The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Maqbool Textile Mills Limited

Rating Type Entity
(19-Feb-22 )
(20-Feb-21 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Maqbool Textile’s long track record and association with Maqbool Group, an established group with presence in the textile and seed oil extraction industry. Maqbool textile is a public listed company with an installed spinning capacity of ~89,000 spindles. The commoditized nature of spinning products keeps margins in check due to strong competition in local and international markets. During FY21, the Company's topline enhanced to stand at PKR 7.3bln (FY20: PKR 5.8bln) where majority portion is local sales. Net profitability reflected same trend attributable to growth in topline. Margins displayed marginal improvement. Momentum continued in 1QFY22 where topline and profitability displayed growth YoY. The financial matrix reveals moderate to high leveraging where coverage was largely maintained (end-Sep21: 1.5x, end-Jun21: 1.2, end-Jun20: 1.6x). The debt structure is skewed towards short-term borrowings which keeps trade leverage range bound. The Company has recently installed new MVS Spinning Unit by availing TERF Facility. Further, the Company is adding back process and winding sections to profile. During the period July-December FY21-22, textile exports surged 26 percent YoY, fielding $9.39 billion in total export remittances, as compared to $7.44 billion 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 value-added textile items increased in both quantity and value in December 2021. Going forward, the textile sector’s outlook is expected to stay positive in the medium term where the demand for textile products is expected to sustain. In the local market, the textile sector has recorded strong performance. The relief measures introduced by the State Bank of Pakistan such as deferment of loan payments for one year, low-interest rates, and salary refinance scheme also provided comfort to the sector. Many players have also availed the TERF scheme announced by the Central Bank. This will lead to overall leverage of the sector to increase; however, on relaxed financing rates. The sustainability of demand pattern for the current higher orders from Europe and USA remains essential for the feasible utilization of added capacity by textile players.
The ratings are dependent upon the management's ability to improve margins, profitability, and financial profile. This includes avoiding any asset-liability mismatch that may arise and effectively managing its position in a competitive segment. Any deterioration in debt coverage leading to higher financial risk or subdued profitability will have a negative impact on ratings.

About the Entity
Maqbool Textile Mills, incorporated in 1989, is a listed company engaged in manufacturing and sales of different varieties of yarn. The Company operates three spinning units installed at Muzzafargarh (units I and II) and Tobatek Singh (Unit III), having a total capacity of ~89,000 spindles. The Company is primarily owned by the Maqbool family (72.5%), followed by National investment (9.9%), financial institutions, and the general public (17.6%). Maqbool family has interests in other textile mills and in the seed oil extraction business. The board comprises ten members. Out of this, four directors are non-executive, three directors occupy the executive roles, while three directors are independent. Seven board members represent Maqbool family. Mr. Anis Ahmed Sheikh, the CEO, carries with him extensive experience in the textile sector and is supported by an experienced 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.