PACRA Assigns Preliminary Ratings to Mahmood Textile Mills Limited - PPSTS - PKR 3.0bln – TBI

The ratings reflect the emerging business profile of Mahmood Textile Mills Limited (“MTML” or “the Company”) in the competitive textile landscape. This stems from its long history of operations in the textile value chain and its gradual transition as a truly vertically integrated unit. MTML is the flagship Company of the “Mahmood Group”. The sponsoring group has a significant presence in textiles and diverse interests across key sectors of the economy, ensuring stability and sustainable growth. The Company has recently executed CAPEX to install a state-of-the-art apparel facility equipped with a high-end production mechanism and significant process automation. The Company has a well-established in-house Research and Development department in its apparel segment, focused on innovation through the introduction of new concepts, researching and analyzing ongoing target market trends, and assessing customer preferences to enhance product market positioning for brands. In segment-wise business contribution, spinning remains the largest contributor. The Company anticipates significant growth potential in the apparel segment and is shifting its focus toward this business vertical. As part of its business strategy, each business vertical operates independently, and management evaluates the core performance of each vertical on an absolute basis. During 1HFY25, the Company's top line declined to PKR 27.71bln (FY24: PKR 66.58bln; 1HFY24: PKR 34.41bln) due to a shift in product mix from coarser count yarn to finer count yarn, along with a downward trend in international cotton prices, which led to a decline in yarn prices. This transition reflects the adoption of a profit-centric approach rather than solely focusing on revenue growth. The consistent decline in the policy rate has provided some cushion in finance costs, resulting in an improvement in net margins. The Company has planned multiple renewable energy alternatives and, in continuation, expects to complete the installation of a 3.5MW solar power plant within one month. Another 10MW biomass steam turbine project is currently in the negotiation stages. The Company's financial risk profile is considered adequate, with a slight improvement in working capital management. The Company maintained a high-leveraged capital structure with adequate coverages and cashflows. Lately, the Company has decided to supplement its working capital requirements by issuing a sukuk.
The rating of the instrument captures the strength of the security structure, primarily from the DPA (Debt Payment Account) mechanism placed under the lien of the investment agent. The DPA will start getting funded 60 days before maturity and continue fortnightly to ensure that the full issue amount is available in the DPA before maturity. The principal repayment and profit payment will be made as a bullet payment. The underlying instrument is secured by a ranking charge over the Company’s current assets with a 25% margin.

About the Entity
MTML, incorporated in 1970, is a family-owned business primarily engaged in the production and sale of Yarn, Grey cloth, and Garments. It is listed on the Pakistan Stock Exchange.

About the Instrument
MTML is set to issue Rated, Secured, Privately Placed, Short-Term Sukuk, carrying a markup rate of 6MK+0.75% with a tenor of 06 months. The purpose of the instrument is to finance the working capital requirements for the procurement of cotton.