Masood Spinning Mills Limited

CREDIT RATING REPORT | Feb-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
28-Feb-25 A- A2 Stable Maintain -
01-Mar-24 A- A2 Stable Maintain -
03-Mar-23 A- A2 Stable Maintain -
03-Mar-22 A- A2 Stable Upgrade -
07-Apr-21 BBB+ A2 Stable Maintain YES
About the Entity

Masood Spinning Mills Limited is a business venture of the Mahmood Group, established in 1935 by entering the tannery business. Now, the group has a presence in the complete cotton chain, tanneries, real estate, and food. Cumulatively, the group operates ~222,384 spindles and ~196 looms. The Group sponsors cumulatively own 100% shareholding directly and through associated companies. Overall control of the board vest with seven BODs. Mr. Khawaja Muhammad Ilyas is the CEO of the Company and has over four decades of experience. He is supported by a team of seasoned professionals.

Rating Rationale

The ratings of Masood Spinning Mills Limited (“MSML” or “the Company”) reflect its adequate positioning in the spinning industry of Pakistan. The assigned ratings take comfort from the Company’s association with the Mahmood Group - the sponsoring group. It emerges from an appreciable presence of the Mahmood Group in multiple business segments and is considered one of the prominent textile conglomerates in the country. The principal activity of the Company is the manufacturing and sale of yarn, cotton seed and cotton lint with a yarn count ranging from 20s to 80s and an operational capacity of 101,664 spindles. The Company has a family-dominated board and the sponsors have an executive role. The Company's management has industry-specific experience, and its organizational structure demonstrates adequate delegation of authority matrix. The Company aims to grow by sustaining its core business, diversifying into new business segments with attractive margins, and implementing good governance for the organization's long-term sustainability. This is evident from the commercialization of its new sock unit with 322 knitting machines, which is now fully operational, as a part of its business diversification strategy to broaden its product offerings in the international market for better product margins and favorable product pricing. As per MSML management presentation, the socks unit is operating at a 98.0% capacity utilization rate as of January 2024 and expects a substantial contribution to its revenue from this unit by the end of FY25. This project is mainly funded through long-term conventional borrowings. The Company’s topline demonstrated a decrease (1HFY25: PKR 15.3bln; 1HFY24: PKR 18.6bln). This was driven by a strategic shift to capitalize on the rising demand for coarse yarn, supported by favorable product pricing dynamics, while maintaining stable sales volumes despite seasonal fluctuations. The management is cognizant of energy cost risk and optimized its overall cost structure with the installation of an ~11 megawatt solar which is operational. This has benefitted the Company’s bottom line and secured a net profitability of PKR 107.3mln (1HFY24: PKR 207.1mln). The financial risk profile of the Company is considered adequate with a slightly stretched working capital cycle depicting the industry norm. The working capital requirements of the Company are primarily met through short-term borrowings with adequate cash flows and coverages. The Company maintained a leverage capital structure. The management of the Company is mindful to keep aligning their financial performance with financial projections.

Key Rating Drivers

The ratings are dependent upon sustainable growth in the top line while maintaining the profitability matrix at an optimal level. The generation of sufficient cashflows and ameliorated coverages remains critical. The adherence to debt matrix at an adequate level is a prerequisite for assigned ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Masood Spinning Mills Limited

rating analysis

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Profile
Legal Structure

Masood Spinning Mills Limited (‘MSML’ or ‘the Company’) was incorporated in Pakistan on July 20, 2000, as a public limited Company under the repealed Companies Ordinance, 1984 (now Companies Act. 2017).


Background

The Company is a significant division of the Mahmood Group, which has flourished since its inception in 1935, evolving into a prominent business empire. Mahmood Group operates with a vision of continuous expansion and diversification while delivering premium quality products and services that create lasting value for all stakeholders.


Operations

The Company operates with three production units: Unit 1 and Unit 2, located in Kabirwala, Khanewal district, near the Company’s head office in Multan, and Unit 3, situated in Phool Nagar, Kasur district. These units have a combined capacity of 101,664 spindles. During the preceding years, the Company invested in a new socks unit to diversify its product portfolio, which has been operating at a capacity utilization level of 98.0% since January 2025. The Company’s total electricity requirement is 14.6 megawatts, which is met through captive generation. Additionally, backup power is available through connections with LESCO and MEPCO to ensure an uninterrupted energy supply. To further optimize production costs, the Company has fully operationalized a 13-megawatt solar power system. 


Ownership
Ownership Structure

Masood Spinning Mills Limited is a wholly owned subsidiary of Mahmood Group. The Company’s entire stake is held by individuals and associated companies, with ownership equally distributed among the three families of the late Khawaja M. Masood.


Stability

The group has a clearly defined shareholding structure among the three brothers. Their mutual understanding regarding the operations of the group companies contributes to the stability of both the sponsoring Group and the Company. However, the formal documentation of the succession plan would further strengthen the clarity and stability of ownership.


Business Acumen

All three brothers bring extensive experience to the textile industry, each with over forty years of expertise in managing the group's businesses. The third generation of sponsors is already actively involved in the day-to-day operations of various group companies, demonstrating the necessary knowledge and capabilities to drive the business forward.



Financial Strength

The financial strength of the Company stems from the strong financial backing of the sponsors. In addition to MSML, the Mahmood Group operates four companies in the textile domain: (i) Multan Fabrics (Pvt). Limited, (ii) MG Apparel, (iii) Cotton Ginning Factories, and (iv) Mahmood Textile Mills Limited. This demonstrates the sponsor's strong capacity to support the Company if needed.


Governance
Board Structure

The overall control of the board lies with seven members from the sponsoring family. The inclusion of an independent director on the Company's board will strengthen the governance framework of the Company.



Members’ Profile

Mr. Khawaja Muhammad Ilyas – CEO – has more than four decades of textile experience. He has been a key position holder in various local corporate bodies of Pakistan. Other directors have expertise in various stages of the textile value chain, which leads to a good skill mix overall board.


Board Effectiveness

The board meetings consistently have full attendance, which bodes well for the board's effectiveness. The meeting minutes are formally recorded; however, there is still room for improvement. Two sub-committees have been established to assist the board on various matters: the Audit Committee and the Human Resource Committee.


Financial Transparency

To align with the high standards of transparency, M/s. Yousaf Adil & Co. Chartered Accountants have been appointed the external auditors of the Company rated in Category “A” by the State Bank’s panel of auditors. The auditors issued an unqualified opinion on the Company’s financial statements for the period ended June 30th, 2024. The Company has an in-house internal audit department, consisting of one manager and four auditors (two auditors at the head office and two at manufacturing facilities). The department reports on a monthly and ad-hoc basis


Management
Organizational Structure

The Company operates primarily in two distinct divisions before delegating strategic decisions to a single overseeing body. At this highest level, the departments are as follows: (i) Audit, (ii) Taxation, (iii) HR and Administration, (iv) IT and ERP, (v) Export and Import, (vi) Purchase and Production, (vii) Corporate Affairs, (viii) Marketing, and (ix) Finance.


Management Team

The CEO, Mr. Khawaja Muhammad Ilyas has over four decades of experience in the textile sector. He holds a directorship position on the board of various group companies. He is supported by a team of seasoned professionals. Mr. Muhammad Anees s/o Mr. Khawaja Muhammad Younus and Mr. Khawaja Muhammad Mehr s/o Mr. Khawaja Muhammad Ilyas look after the day-to-day operations of Kabirwala (Unit I & II) and Phool Nagar (Unit III) facilities respectively.


Effectiveness

The management's responsibilities are clearly delineated. While the Company does not have formal management committees, it possesses a strong IT infrastructure and controls to support seamless operations.


MIS

For comprehensive reporting, the Company has embraced digitalization and the principles of Industry 4.0 through the implementation of Oracle Fusion across all operational segments. This strategic initiative leverages cutting-edge technology to enhance efficiency, streamline processes, and improve overall productivity.


Control Environment

The Company is following the latest quality assurance standards for the production and trade of yarn. On an operational level, samples of cotton and yarn are tested for quality in the laboratories of each manufacturing unit.


Business Risk
Industry Dynamics

Textile exports of the country reached USD 16.7bln in FY24, a slight increase from USD 16.5bln in the previous year, reflecting a growth of 0.93% YoY. The highest contribution came from the composite and garments segment at USD 9.1bln, followed by the weaving segment at USD 6.5bln and the spinning segment at USD 1.0bln. In FY25, the transition from the final tax regime to the normal tax regime is set to impact the profitability matrix of export-oriented units, with a 29% tax on profits and a super tax of up to 10%.


Relative Position

Overall, Mahmood Group has a strong presence in the country’s textile sector, while Masood Spinning Mills Limited has a production capacity of 101,664 spindles and it falls in the mid-tier of the respected industry.


Revenues

A major chunk of the Company's revenue base is generated from export sales. During FY24, the Company's topline reflected a robust increase at PKR 36.2bln (FY23: PKR 31.9bln) primarily due to an upswing in the sale of yarn. The exports illustrated an upward trend and reached PKR 29.7bln (FY23: PKR 25.6bln), posting a growth of 16.0% on a year-on-year basis as the Company made adjustments in its product portfolio and opted towards the manufacturing of finer yarn count. Indirect sales make up a considerable portion of the Company’s exports with a contribution of PKR 18.3bln (FY23: PKR 17.4bln). The sales in the domestic market stood at PKR 6.7bln (FY23: PKR 6.5bln). During 1HFY25, the Company's topline showed a diminution at PKR 15.3bln (1HFY24: PKR 18.6bln), mainly due to suppressed demand for the yarn in both local and international markets. The Company’s revenue concentration is diversified, indicating a low geographic concentration risk. China and Bangladesh are the leading export destinations of the Company followed by Turkiye, Portugal, Germany, and a few others. Locally, the Company mostly sells to several big players in the respective industry. The top five local customers of the Company are well-established and stable entities; Shasha Denims Limited, Gul Ahmed Textile Mills Limited Xiamen Port Commerce Information Co., Limited, Orient Textile Mills Limited, and Al Rahim Textile Industries Limited.


Margins

The efficient management of the production cost resulted in a slight improvement in the gross profit margin (FY24: 13.8%, FY23: 12.2%). The operating margin stood at 11.6% (FY23: 9.6%) followed by a strategic reduction in total operating expenses. In FY24, the surge in short-term conventional debt led to a massive increase in the Company's finance cost reported at PKR 3.7bln (FY23: PKR 2.4bln) As a result, the Company’s bottom line tumbled to PKR 148.4mln (FY23: PKR 542.3mln). The Company’s net profit inched down to 0.4% in FY24 compared to 1.7% during the same corresponding period. During 1HFY25, the Company’s gross margin went down to 13.2% on the back of expensive procurement of cotton and amplified energy costs. However, the gradual decrease in the interest rates provided a cushion to the Company’s net profitability clocking at PKR 107.3mln with the net profit margin inched up to 0.7%.


Sustainability

During FY24, the Company took the initiative to sell legwear in the international market which is a niche product for MSML. Looking ahead, the management intends to boost the sale of the legwear and socks segment to achieve long-term sustainability in the volatile industry.


Financial Risk
Working capital

The Company’s working capital needs emanate from financing inventories and trade receivables. During 1HFY25, the Company's net working capital was stretched to 151 days (FY24: 126 days) attributed to a sharp increase in the inventory cycle recorded at 126 days (1HFY24: 94 days). The total trade assets reflected an improvement in 1HFY25 and the Company's short-term trade leverage inched up 3.6% (FY24: 3.1%), depicting a limted borrowing capacity.


Coverages

In IHFY25, the Company's free cash flows from operations were recorded at PKR 1.4bln (FY24: PKR 4.7bln) driven by a dilution in the profit before tax. Despite this decrease, the Company's interest coverage and core operating coverage remained in a moderate range. Going forward, the improvement in the coverages remain essential. The Company’s debt payback period further increased to 12.5 years (FY24: 6.6 years) on the back of an incline in total borrowings.


Capitalization

The Company has a highly leveraged capital structure. In 1HFY25, the Company's equity base slightly increased to PKR 6.6bln (FY24: PKR 6.5bln) followed by a positive bottom line. The total leveraging dropped to 76.2% (FY24: 78.5%) primarily due to an optimization of the debt structure. The size of the Company's borrowing book declined to PKR 21.2bln (FY24: PKR 23.9bln)  dominated by the short-term borrowings.
 
 

Feb-25

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Masood Spinning Mills Limited

financial summary

(PKR mln)

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Dec-24
6M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 12,442 12,725 8,899 6,532
2. Investments 889 901 1,084 706
3. Related Party Exposure 0 0 0 604
4. Current Assets 19,151 21,906 16,818 14,141
a. Inventories 10,944 10,195 8,513 8,914
b. Trade Receivables 4,556 4,905 4,928 3,504
5. Total Assets 32,483 35,531 26,801 21,982
6. Current Liabilities 4,554 5,052 2,574 1,996
a. Trade Payables 2,690 2,656 753 263
7. Borrowings 21,268 23,926 17,950 14,522
8. Related Party Exposure 0 0 0 0
9. Non-Current Liabilities 0 0 109 0
10. Net Assets 6,661 6,553 6,167 5,464
11. Shareholders' Equity 6,661 6,553 6,167 5,464
B. INCOME STATEMENT
1. Sales 15,311 36,274 31,938 24,356
a. Cost of Good Sold (13,290) (31,278) (28,048) (19,067)
2. Gross Profit 2,021 4,997 3,890 5,289
a. Operating Expenses (567) (787) (809) (1,290)
3. Operating Profit 1,454 4,210 3,080 3,999
a. Non Operating Income or (Expense) 3 150 356 (495)
4. Profit or (Loss) before Interest and Tax 1,457 4,360 3,437 3,504
a. Total Finance Cost (1,159) (3,720) (2,410) (1,056)
b. Taxation (191) (491) (485) (370)
6. Net Income Or (Loss) 107 148 542 2,077
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 1,423 4,769 3,380 3,748
b. Net Cash from Operating Activities before Working Capital Changes (20) 1,268 1,380 2,761
c. Changes in Working Capital 2,820 (2,945) (1,354) (4,317)
1. Net Cash provided by Operating Activities 2,800 (1,677) 27 (1,556)
2. Net Cash (Used in) or Available From Investing Activities (122) (4,386) (3,297) (3,342)
3. Net Cash (Used in) or Available From Financing Activities (2,658) 5,975 3,277 4,922
4. Net Cash generated or (Used) during the period 20 (89) 7 24
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -15.6% 13.6% 31.1% 40.3%
b. Gross Profit Margin 13.2% 13.8% 12.2% 21.7%
c. Net Profit Margin 0.7% 0.4% 1.7% 8.5%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 27.7% 5.0% 6.3% -2.3%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 3.3% 2.3% 9.3% 46.8%
2. Working Capital Management
a. Gross Working Capital (Average Days) 182 144 148 153
b. Net Working Capital (Average Days) 151 126 142 149
c. Current Ratio (Current Assets / Current Liabilities) 4.2 4.3 6.5 7.1
3. Coverages
a. EBITDA / Finance Cost 1.7 1.4 1.6 4.1
b. FCFO / Finance Cost+CMLTB+Excess STB 0.9 0.9 1.1 2.5
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 12.5 6.6 5.2 1.5
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 76.2% 78.5% 74.4% 72.7%
b. Interest or Markup Payable (Days) 99.7 91.1 104.8 96.4
c. Entity Average Borrowing Rate 10.0% 17.2% 13.5% 8.4%

Feb-25

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Masood Spinning Mills Limited

rating scale

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Feb-25

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Masood Spinning Mills Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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Feb-25

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