The Pakistan Credit Rating Agency Limited
Press Release


Muhammad Harris Ghaffar

Applicable Criteria

Related Research

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 Nagina Cotton Mills Limited

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

The Nagina Cotton Mills Limited (“the Company” or “NCML”) ratings emanate from the strapping profile of the sponsoring group- Nagina group. Three Companies primarily operate under the umbrella of the Nagina group which includes NCML, Prosperity Weaving Mills Limited & Ellcot Spinning Mills Limited. The group has a presence in the local & export-oriented spinning and weaving sector through Ellcot Spinning Mills Limited, NCML, and Prosperity Weaving Mills Limited. The rating takes comfort from the financial strength of the sponsoring group... The core operating activity of the Company is the manufacturing and sale of yarn with a production capacity of 62,000 spindles. The Companies dedicated to spinning only have an inherent risk of 100% single product concentration and dependency on a sole raw material, primarily raw cotton. This situation can lead to potential vulnerabilities in the supply chain if the supply side disrupts. During FY24, the raw cotton production target is estimated to be at 12.80mln bales and the cotton yield is expected to ameliorate this year to supplement local production demand in comparison to last year when a substantial portion of Pakistan had a detrimental impact on cotton crops, potentially posing a barrier to local raw material availability and experience a 55% shortfall in its targeted production of domestic cotton. Availability of electricity at subsidized rates, the surge in tax burden, and massive PKR devaluation are other challenges specific to the industry. Currently, due to the consistent surge in policy rate, the Company is not expected to execute any CAPEX during FY24. According to the Pakistan Textile Mills Association (APTMA) Pakistan’s textile sector exports witnessed a significant decline of 15% in July, clocking in at USD1.3bln compared to USD1.54bln last year During 9MFY23, , the top line of the Company has a growth of 12.8% QoQ basis. The company has a predominately export-oriented business model which demands them to produce finished goods up to the scale of globally acceptable quality standards along with entertaining international customers' business requirements. The dependency on imported raw cotton has an inherent risk of supply chain disruption along with PKR devaluation which may trigger challenge on raw material availability and inflated cost of production. During the period under review, the elevated cost of production, and magnifying interest burden have caused a dip in the margins and profitability matrix of the Company. The financial risk profile is considered moderate as the management of inventory at an optimal level to cater for the stable demand of Yarn has augmented the working capital management of the Company. However, the company has witnessed a decline in coverages, owing to lower operating cashflows. Capital structure leans towards leveraged with a predominant presence of long-term borrowings (LTFF) for BMR previously executed and working capital requirements primarily met through internally generated cashflows which aided the financial risk score
The ratings are dependent on the Company’s ability to increase business margins through operational efficiencies and product quality. The sustainability of cashflows and coverages at a comfortable level remains critical for the ratings along with prudent management of the investment portfolio. Going forward, consistent growth in accumulated profits should supplement the equity levels.

About the Entity
NCML was incorporated in 1967 as a public limited company, primarily owned by Nagina Group, with around 91% ownership. The Company has a ten-member board, consisting of 05 non-executive directors (N.E.D), 02 E.Ds and three independent directors. Mr. Shahzada Ellahi Shaikh serves as the Chairman of the board and Mr. Amin Ellahi is the CEO of the Company.

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.