The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Assigns Initial Entity Ratings To Khawaja Tanneries (Private) Limited

Rating Type Entity
(30-Mar-22 )
Action Initial
Long Term BBB
Short Term A2
Outlook Stable
Rating Watch -

Khawaja Tanneries (Pvt.) Limited (hereafter referred to as ‘KTL’) is principally engaged in the manufacturing of a wide range of leathers from the rawhide to the crust and finished stages, both in Cow and Buffalo. The ratings reflect Company’s long-lived presence in tannery industry underpinned by the foundation stone for Mahmood Group – a known industrial & commercial group. Pakistan’s leather industry has seen declining trends in preceding years however slight recovery observed post-pandemic crises. The industry is ~95% export-oriented and accounts for ~3% of total country’s exports. Amongst the exports, leather apparel and gloves contribute the highest followed by tanned leather, footwear, and other products. Pakistan’s leather products enjoy duty free access to the European Union (prime consumer of leather goods globally) under the EU’s Generalized Scheme of Preferences. Lack of technological advancements, skilled labor force, presence in global fashion industry, and introduction of low-priced alternative can hamper the overall growth of this industry. Nevertheless, rising populace, increasing fashion trends, and depreciating exchange rate are likely to favor market participants. The key opportunities are generically available to the Company if investments are made in terms of offering value-added products. The Company’s export sales performance is driven by seasonal effect, volatility in global fashion trends, and local industrial developments. Margins of the Company are significantly dependent on improved topline. The Company has to build strong capital base. Ownership structure of the Company is majorly represented by family members. Going forward, the management intends to materialize the envisaged strategies by moving towards high-valued finished leather products. Financial risk profile of the Company is considered adequate with steady coverages, working capital cycle and cash flows. KTL’s capital structure is moderately leverage; encompassed STBs and low equity. Further, implementation of good governance structure is required to ensure compliance at all levels and smooth running of operations.
The ratings are dependent on the KTL’s ability to sustain its position amidst conservative leather business environment and management’s ability for successful strategy execution pertaining to manufacturing of high-fashion finished leather products. With growth in KTL’s revenue; prudent financial performance and effective liquidity profile shall remain imperative.

About the Entity
Khawaja Tanneries (Pvt.) Limited is a private limited concern established in 1935. Mr. Khawaja Muzaffar Mahmood laid the foundation of Mahmood Group by entering into tannery business, twelve years before the establishment of Pakistan. Ever since, the group has evolved as a diversified business empire by serving various industries. KTL has been involved in the manufacturing and sale of tanned leather, both Cow & Buffalo. Recently, the Company has started manufacturing leather shoe; sales constituted to local brands.
KTL’s ownership solely lies with the sponsoring family. Mr. Iqbal (Chairman) and Mr. Younas own highest stake ~33% each, Mr. Ilyas (CEO) owns ~3% stake whereas remaining shareholding is equally distributed between two sons of CEO – Mr. Mehr Ali and Mr. Qasim. Mr. Ilyas (CEO) is associated with the KTL since last four decades & holds relevant industrial experience. He is assisted by his son (Mr. Mehr Ali) and a qualified team of professionals.

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.