PACRA Maintains Entity Ratings of Nagina Cotton Mills Limited

The assigned rating of Nagina Cotton Mills Limited (“the Company” or “NCML”) reflects the prominent profile of its sponsoring group - Nagina Group, one of the oldest medium-sized textile groups in Pakistan. Three publicly listed Companies primarily operate under the umbrella of the Nagina Group and NCML is considered a flagship Company to cater for the export segment primarily. The Group operates in the spinning sector through NCML and Ellcot Spinning Mills Limited and in the weaving sector via Prosperity Weaving Mills Limited(PMWL). Over the years, NCML has executed CAPEX of ~ PKR 2.3bln by installing 10,800 additional spindles to augment their yarn production capacity annually from 18 to 25mln Kgs. During FY24, the Company operated at a capacity utilization of 100.0%. This decline occurred as the additional capacity will be gradually utilized following the influx of export orders. The Company has a total energy requirement of 6.67MW (Mega Watt), primarily met through gas generators (73.3%). The rest is met through HESCO (20.7%), furnace oil (3.1%) and solar (2.8%). NCML has already installed a 1MW solar power plant and is in the process of installing an additional 1.5MW at a cost of ~ PKR 120mln via utilizing conventional borrowings to manage escalated energy cost risk. There is a strategic shift in the Nagina group yarn production strategy by moving from 20/s count to 18/s count yarn production (more coarse yarn count) to meet customers’ demands and it contributed as a set forth factor behind volumetric growth in sales coupled with an increase in the number of spindles installed. During 9MFY24, the Company achieved a topline of PKR 15.6bln (FY23: PKR 12.8bln) with a for-the-period growth of 62.7%; mainly driven by volumetric impact as shifting towards coarse yarn production has reduced per Kg product price. Exports constitute 41.5% of the total gross sales as of 9MFY24. In terms of export revenue contribution, the Netherlands and Singapore are NCML's prime export destinations with prominent players as their top export customers. NCML has ~ 29.0% of sales in the local segment dedicated to group Company; PMWL. The Company recorded a net profitability of PKR 70mln during 9MFY24 (9MFY23: 557mln). The margins of the Company have been impacted by expensive raw material procurement, rising energy tariffs, and increased financial costs. The Company's financial risk profile is considered moderate as NCML aptly managed their working capital management via optimizing inventory levels which rationalizes the requirement of short-term borrowings and creates a cushion in short-term trade leverage. The coverages and cash flows of the Company are considered adequate. The Company has maintained a leveraged capital structure with long-term borrowings dominated by subsidized borrowing from SBP.
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. The adherence to debt matrix at an optimal level is a pre-requisite for assigned rating.

About the Entity
NCML was incorporated in 1967 as a public limited company, with 91% shareholding vested with the sponsoring family. The Company has a ten-member board, consisting of five non-executive directors, two executive directors, and three independent directors. Mr. Shahzada Ellahi Shaikh serves as the Chairman of the Board. The management team is headed by the CEO Mr. Amin Ellahi who is well-versed in the textile business providing requisite acumen.