PACRA Maintains the Entity Ratings of Mekotex (Pvt). Limited

The ratings reflect the presence of Mekotex (Pvt). Limited (“MPL” or “the Company”) in the competitive textile landscape. This stems from the strong business profile and financial strength of the sponsors. It is the flagship Company of Mekotex Group. The group is considered a textile powerhouse with a long history of operations in the respective industry. The product slate of the Company primarily vests into Yarn, Fabric, and Garments. In segment-wise business contribution, Weaving is the foremost segment. A major chunk of revenue is derived from the local sales. While the exports are deftly channeled through the corporate entities of KAM International and KAM Apparel. The top clients of the Company are stable and well-established entities. During 9MFY24, the Company’s topline exhibited a dip at PKR 20.8bln (9MFY23: PKR 22.6bln) attributable to low demand and consumption trends in the local industry. The margins dipped minutely on the back of expensive raw material procurement and elevated energy cost. The management has planned the installation of a solar project as an alternate energy source. This project will be financed through the shareholder’s equity. The Company’s reliance on STBs has magnified the finance cost. This has largely diluted the profitability matrix of the Company (9MFY24: PKR 106mln; 9MFY23: PKR 284mln). The Company's financial risk profile is considered adequate with stretched working capital management depicting the industry norm. The Company's working capital requirements are primarily met through short-term borrowings (STB). The improvement in cash flows and coverages remains essential. The Company has maintained a leveraged capital structure. The Company is in the process of taking over the business which was being done under the umbrella of KAM International. This will enhance the topline of Mekotex. The size of the textile industry in Pakistan is estimated to be USD 8.1bln, ~3.0% of the total GDP as of FY23. The composite & garment segment in the textile sector has a contribution of USD 5.6bln mainly dominated by knitwear, readymade garments, bedwear, and towels followed by USD 2.7bln from spinning and USD 2.2bln from weaving. The escalation in energy tariffs & finance costs, PKR devaluation, and ensuring the availability of optimum quality raw materials are prime challenges specific to the industry to assess the international market and stay price-wise competitive.
The ratings depend on sustainable growth in the top line while improving the profitability matrix at an optimal level. The sufficient generation of cash flows and improvement in coverages remain critical. Adherence to the debt matrix at an adequate level is a prerequisite for assigned ratings.

About the Entity
Mekotex Pvt. Limited was incorporated in 1991. It specializes in denim fabric. In 1993, the company also started producing fabric for home textiles. The operational spectrum encompasses ginning, spinning, weaving, processing, and digital printing. The company’s operations are supported by 4 ginning machines, 110,000 spindles (spinning), 450 looms (weaving), and 5 digital printing machines. Mekotex is a family-owned business with the majority of shares owned by Mr. Riyan Ashraf (36%). The remaining stake rests with Mr. Khalid Majeed (28%), and Mr. Shoaib Majeed (28%). The group has diversified itself into energy and water projects. The overall control of the board is vested with five members. The CEO, Mr. Khalid Majeed is supported by a highly qualified management team.