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PACRA Maintains Entity Ratings of Maqbool Textile Mills Limited – Assigns Rating Watch

Rating Type Entity
(18-Feb-23 )
(19-Feb-22 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

The ratings reflect Maqbool Textile’s long track record and association with Maqbool Group, a group with a presence in the textile and seed oil extraction industry. Maqbool textile is a public listed company. During FY22, the company added a newly erected MVS spinning unit with 576 MVS spindles to increase its production capacity equivalent to 12,000 conventional ring spindles. The company’s top line displayed a sizeable improvement at PKR 10.3bln (FY21: PKR 7.3bln). The contribution to local sales improved YoY where the exports also recorded an uptick. The expenses illustrated a higher trend. The net profitability displayed a good increase YoY at PKR 269mln (FY21: PKR 156mln) attributable to higher demand for textile products. The margins and coverages demonstrated a slight improvement. The leveraging inched up attributable to the enhanced equity base recorded at PKR 2.8bln. During 1HFY23, the company’s operating profit witnessed a dip YoY on the back of higher expenses. The finance cost increased manifold and the company recorded net losses of 200mln due to a low demand pattern. The debt structure is skewed towards short-term borrowings. The rating watch has been incorporated attributable to incurred losses and the aforementioned parameters. During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge. The analysis of 5MFY23 reveals that among value-added items, bedwear has witnessed the largest decline of 19% (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million. Among non-value-added items, the cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23.
The ratings are dependent upon the management's ability to improve margins, profitability, and financial profile of the company. This includes avoiding any asset-liability mismatch that may arise and effectively managing its position in a competitive segment. Any deterioration in debt coverages 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 the manufacturing and sales of different varieties of yarn. During FY22, the company added a newly erected MVS Unit. The company operates four spinning units installed at Muzaffargarh (Unit I, II, and IV), and Tobatek Singh (Unit III), having a total capacity of 82,224 spindles (Unit I, II & III) and 576 MVS spindles (Unit IV), which are equivalent to 12000 conventional ring spindles. The company is primarily owned by the Maqbool family (75.22%) and others (24.78%). Maqbool family has interests in other textile mills and the seed oil extraction business. The board comprises ten members. Out of this, four directors are non-executive, three directors occupy executive roles, and three directors are independent. Seven board members represent the Maqbool family. Mr. Mian Tanvir 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.