PACRA Maintains the Entity Ratings of Mahmood Textile Mills Limited

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 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, the spinning segment remains the largest contributor, followed by the weaving and apparel segments. 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 (1HFY25: PKR 27.71bln; FY24: PKR 66.58bln) due to a shift in the 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. The Company's gross margins have slightly declined due to the revision of minimum wage rates and a surge in energy costs during 1HFY25. However, the consistent decline in the policy rate has provided some relief in financing costs, improving net margins. Additionally, the recent reduction in the commercial electricity tariff by PKR 7.59 per unit is expected to offer further cushion to the cost structure. The Company is investing in multiple renewable energy alternatives. As part of this initiative, the installation of a 3.5 MW solar power plant is at an advanced stage of completion. Additionally, a 10-megawatt biomass turbine project is also currently underway. The Company's financial risk profile is considered adequate, with a slight improvement in working capital management. The Company maintained a highly leveraged capital structure with adequate coverages and cash flows. MTML has issued a Sukuk of PKR 3.0bln to meet its intensive working capital requirements. The textile industry is grappling with several key challenges, including evolving global demand and consumption trends, alongside mounting pressures on price competitiveness. These pressures stem from a revision in the minimum wage, elevated energy tariffs, which despite a reduction, remain high in regional comparison, reliance on imported cotton due to an 18% GST on local procurement, and the looming imposition of a 29.0% reciprocal tariff on exports to the United States, currently deferred for 90 days.
The ratings are dependent upon the Company’s ability to sustain business growth while generating sufficient cash flows and maintaining the profitability matrix at an optimal level. The sustainability of margins and improvement in coverages while expanding business volumes remain critical.

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. Mahmood Group – sponsor – cumulatively holds over ~92% stake via Individuals and Group companies. Overall control of the board vests with seven members. The CEO, Mr. Khawaja M. Younus, is supported by a team of highly qualified and seasoned professionals.