The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains the Entity Ratings of Masood Spinning Mills Limited

Rating Type Entity
(03-Mar-23 )
(03-Mar-22 )
Action Maintain Upgrade
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Masood Spinning Mills Limited (‘Masood Spinning’ or ‘The Company’) is a public unlisted company. The Company is part of Mahmood Group, one of the leading textile conglomerates in the country. The Company is engaged in manufacturing 0-40 count yarn (coarse yarn) and fine count yarn. During FY22, the company’s production capacity was enhanced to 101,664 spindles. The company’s revenue base reflected a robust increase to stand at PKR 24.3bln (FY21: PKR 17.3bln) attributable to a higher demand pattern and favorable yarn prices. The sales mix remained tilted towards the export market. The company mainly exports to Europe and China, with China responsible for buying more quantities. The risk of geographic concentration in Europe is considered manageable, however, client-wise concentration has remained on the higher side. Locally, the Company mostly sells to large-sized and registered customers. The company’s margins and coverages recorded a healthy increase. The net profitability was recorded as historically high (FY22: PKR 2bln; FY21: PKR 901mln). The coverages and debt payback demonstrated improvement owing to a sizeable increase in the free cash flows from operations (FY22: PKR 3.7bln: FY21: PKR 1.9bln). The risk absorption capacity improved on the back of the enhanced equity base. During 1HFY23, the company’s topline improved YoY at PKR 14.6bln (1HFY22: PKR 10.9bln). The company’s expenses and finance cost illustrated a higher trend witnessed throughout the industry.
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 Company's association with Mahmood Group and vast experience of sponsors remain important rating factors. The ratings are dependent upon the management’s ability to improve margins, profitability, and financial profile of the Company. This includes keeping the debt levels manageable and improving the Company’s competitive position in the industry. Sponsor’s support and business acumen remain important for the ratings.

About the Entity
Masood Spinning is a venture of Mahmood Group, which was originally established in 1935, by entering the tannery business. Now, the group has a presence in the complete cotton chain (growing to finished products), tanneries, real estate, and food. Cumulatively, the group operates ~222,384 spindles and ~196 looms, out of which 101,664 spindles come under Masood Spinning Mills Limited. Mahmood Group Sponsors cumulatively own 100% shareholding directly and through associated companies. Overall control vest with eight board members, all of whom are from the sponsoring family. Mr. Khawaja Muhammad Younus is the CEO of the Company and has over four decades of experience. He is supported by a team of seasoned 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.