Mahmood Textile Mills Limited

CREDIT RATING REPORT | Apr-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
30-Apr-25 A- A2 Stable Maintain -
21-Jun-24 A- A2 Stable Maintain -
23-Jun-23 A- A2 Stable Maintain -
25-Jun-22 A- A2 Stable Maintain -
25-Jun-21 A- A2 Stable Maintain -
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.

Rating Rationale

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.

Key Rating Drivers

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.

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

Mahmood Textile Mills Limited

rating analysis

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Profile
Legal Structure

Mahmood Textile Mills Limited ('Mahmood Textile' or 'the Company') is a public listed concern, incorporated in 1970. The Company is listed on the Pakistan Stock Exchange


Background

MTML is part of the Mahmood Group, which was established in 1935 by entering the tannery business. The group has now evolved into a diversified business empire, with Mahmood Textile as its flagship Company.


Operations

It is engaged in the production and sale of yarn and greige fabric. Its production facilities are located in Muzaffargarh, DG Khan, and Multan. The Company has 158,064 spindles, 228 looms and 2,300 stitching machines facilitating its production processes. With a generation capacity of ~20.45MW, the management ensures uninterrupted operations, supplemented by a backup line from MEPCO. Notably, the Company has recently invested in solar energy, installing an infrastructure capable of generating around ~13.5MW of power.


Ownership
Ownership Structure

The majority of the Company's shareholding (~92.85%) is vested with sponsors. The remaining (~7.15%) stake rests with joint stock companies and the general public.


Stability

Mahmood Group has no holding Company, but the third generation of the sponsoring family is actively involved in the operations of the Company, but no formal succession plan has been announced. Documentation or formation of a family office will bode well with stability and succession of ownership.


Business Acumen

With more than eight decades of experience, the sponsors possess expertise across various sectors, spanning textile, tanneries, real estate, and food industries.


Financial Strength

Mahmood Group maintains an adequate financial profile with a considerable equity base through Group companies and Stock market investments. The group has a strong financial strength to support the Company, if needed.


Governance
Board Structure

The Company has a seven-member board including two independent directors. Other members are the representatives of the Sponsoring family. The Company's board is chaired by Mr. Khawaja Muhammad llyas.


Members’ Profile

Mr. Khawaja Muhammad llyas has more than five decades of textile experience. He has been a key position holder in various local corporate bodies of Pakistan. Overall, the board members possess diversified knowledge and experience, which leads to a good skill mix of their competencies.


Board Effectiveness

. In line with best corporate governance practices, there are two sub-committees in place to assist the board on relevant matters; Audit Committee and Human Resources and Remuneration Committee chaired by the independent directors. Attendance of directors in meetings remains high, boding well for the board's effectiveness.Meanwhile, the meeting minutes have been formally documented but there is room for improvement.


Financial Transparency

M/s Crowe Hussain Chaudhury & Co. Chartered Accountants are the external auditors of the Company, listed in Category "A" of the State Bank's panel of auditors. The auditor expressed an unqualified opinion on the financial statements of the Company for the period ending June 30th, 2024. The Company has an internal audit function in place to ensure effective oversight, with the Head of Internal Audit reporting directly to the Board Audit Committee


Management
Organizational Structure

The organizational structure of Mahmood Textile is divided into various departments reporting to the CEO and CFO. The departments are as follows: (i) Audit (ii) Taxation (iii) HR and Admin (iv) IT and ERP (v) Export and (vi) Finance.


Management Team

The CEO, Mr. Khawaja M. Younus has been associated with the Company for over four decades. He is supported by a team of seasoned professionals, most of whom have been associated with the Company for a long period of time.


Effectiveness

Adequate IT infrastructure and related controls are maintained. There is regular preparation of reports regarding the Company's receivables and payables position, purchases and procurement, audit report, etc., to be submitted to higher management.


MIS

The Company has deployed Oracle Fusion Cloud ERP with daily and monthly MIS to ensure the timely availability of information for effective decision-making.


Control Environment

MTML is accredited with international certifications for compliance, including ISO 9001. The Company adheres to the latest quality assurance standards for fabric production and trade in addition to the employment of quality control procedures.


Business Risk
Industry Dynamics

The 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. During 6MFY25, the textile exports stood at USD 9.1bln. 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%. The consistent decline in policy rates over the last two quarters, along with the anticipation of further reductions, is expected to provide a cushion in the financial metrics of the industry.


Relative Position

With 158,064 spindles, 228 looms and 2,300 stitching machines, Mahmood Textile is one of the large players with an adequate market share in the respective industry.


Revenues

The Company's 3-year CAGR from 2022 to 2024 exhibited a considerable growth of 34%, signifying a 21.9% year-on-year increase. During FY24, the Company's topline reached a historic high at PKR 66.5bln (FY23: PKR 54.6bln), attributed to a surge in export sales. The sales mix tilted towards the international market primarily due to improved demand patterns and consumption trends for yarn and apparel. Exports constituted approximately 77.4% of the total revenue. The export destinations of the Company are Europe, United States, China, Turkey and others accompanied by optimal risk diversification. In terms of product-wise revenue contribution, yarn is the Company's top-selling product, followed by cloth, apparel and others. During 1HFY25, the Company's top line declined to PKR 27.7bln (1HFY24: PKR 34.4bln) 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.


Margins

During FY24, the Company's gross profit inched up to 14.6% (FY23: 14.1%) on the back of controlled production cost. However, the dividend income has bolstered the bottom line (FY24: PKR 437mln; FY23: PKR 598mln). The Company's finance cost stood at PKR 5.6bln (FY23: PKR 3.9bln), indicating a substantial increase of 42.4% YoY, which has been witnessed throughout the industry. This resulted in a dilution in the bottom line (FY24: PKR 250mln; FY23: PKR 1.2bln), with a net profit margin of 0.4% (FY23: 2.2%). The Company's gross margin clocked at 13.6% (1HFY24: 15.5%), whereas the operating margin posted a slight decrease at 9.3% (1HFY24: 10.4%).


Sustainability

To mitigate the adverse impact of elevated energy cost, the management has installed a ~3MW steam turbine. Additionally, the Company plans to invest in a Biomass project for ~10MW, further enhancing its sustainability profile.


Financial Risk
Working capital

The Company’s working capital requirements are a function of inventory and receivables, for which the Company relies on internally generated cash and short-term borrowings. The prudent management of trade receivables resulted in the optimization of the Company’s net working capital cycle (end-Jun24: 117 days; end-Jun24: 128 days). Further, the inventory cycle was slightly elevated (end-Jun24: 95 days; end-Jun24: 98 days). The Company has adequate room to borrow as the short-term trade leverage improved to 24.2% (end-Jun24: 21.2%). As of the end-Dec24, the Company’s cash conversion cycle was extended to 159 days to cater to the peak season requirements, which require bulk buying, escalating the total inventory cycle to 124 days. However, the Company’s borrowing capacity marginally increased to 29.6%, primarily due to an increase in trade assets.


Coverages

As of end-Jun24, the free cash flows from operations demonstrated an upswing and clocked at PKR 8.0bln (end-Jun24: PKR 5.7bln), indicative of prudent financial management. The Company’s interest coverage and core operating coverage stood at 1.5x (end-Jun24: 1.5x) and 1.1x (end-Jun24: 1.0x). The strategic offloading of the Company’s debt book led to a minute reduction in the debt payback period at 5.1 years (end-Jun24: 5.5 years). As of end-Dec24, the Company’s EBITDA and FCFO (free cash flows from operations) were reported at PKR 3.3bln and PKR 3.0bln. The interest coverage and core operating coverage remained largely the same at 1.6x and 1.0x, respectively.


Capitalization

The Company has maintained a moderately leveraged capital structure. As of end-Jun24, the Company’s total borrowings exhibited a decrease to stand at PKR 26.9bln (end-Jun24: PKR 28.5bln) as evidenced by a decline in the gearing ratio (end-Jun24: 60.8%; end-Jun24: 67.5%). The Company’s equity base was enhanced to PKR 17.4bln (end-Jun24: PKR 13.7bln) primarily due to an increase in unappropriated profit (end-Jun24: PKR 11.4bln; end-Jun24: PKR 10.9bln). As of end-Dec24, the size of the Company’s debt book further increased to PKR 31.0bln as reflected by a surge in the total leveraging at 63.6%. The debt book is predominantly vested with the short-term conventional borrowings (STBs) to fuel the extensive working capital requirements of the Company.
 
 

Apr-25

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Mahmood Textile 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 21,567 22,306 17,713 13,999
2. Investments 206 203 187 325
3. Related Party Exposure 2,182 2,074 5,539 5,114
4. Current Assets 35,448 30,450 27,931 20,355
a. Inventories 20,685 16,830 17,736 11,638
b. Trade Receivables 8,973 6,724 6,145 6,281
5. Total Assets 59,402 55,033 51,371 39,793
6. Current Liabilities 9,883 9,831 8,470 5,146
a. Trade Payables 2,486 2,554 2,370 975
7. Borrowings 31,065 26,992 28,560 21,377
8. Related Party Exposure 0 0 0 62
9. Non-Current Liabilities 707 805 586 558
10. Net Assets 17,746 17,405 13,755 12,651
11. Shareholders' Equity 17,746 17,405 13,755 12,651
B. INCOME STATEMENT
1. Sales 27,707 66,584 54,627 40,969
a. Cost of Good Sold (23,952) (56,855) (46,919) (34,774)
2. Gross Profit 3,755 9,729 7,708 6,195
a. Operating Expenses (1,183) (2,883) (2,422) (2,471)
3. Operating Profit 2,572 6,846 5,287 3,724
a. Non Operating Income or (Expense) 131 157 591 786
4. Profit or (Loss) before Interest and Tax 2,702 7,003 5,878 4,510
a. Total Finance Cost (1,990) (5,631) (3,953) (1,784)
b. Taxation (371) (1,122) (723) (784)
6. Net Income Or (Loss) 341 250 1,202 1,942
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 3,017 8,077 5,762 5,285
b. Net Cash from Operating Activities before Working Capital Changes 866 2,660 2,612 3,710
c. Changes in Working Capital (6,115) 1,594 (5,120) (5,799)
1. Net Cash provided by Operating Activities (5,249) 4,254 (2,508) (2,089)
2. Net Cash (Used in) or Available From Investing Activities 1,166 (2,779) (4,471) (5,054)
3. Net Cash (Used in) or Available From Financing Activities 4,118 (1,478) 6,902 7,092
4. Net Cash generated or (Used) during the period 35 (3) (78) (51)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -16.8% 21.9% 33.3% 46.7%
b. Gross Profit Margin 13.6% 14.6% 14.1% 15.1%
c. Net Profit Margin 1.2% 0.4% 2.2% 4.7%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) -11.2% 14.5% 1.2% -1.3%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 3.9% 1.6% 9.1% 17.2%
2. Working Capital Management
a. Gross Working Capital (Average Days) 175 130 140 126
b. Net Working Capital (Average Days) 159 117 128 120
c. Current Ratio (Current Assets / Current Liabilities) 3.6 3.1 3.3 4.0
3. Coverages
a. EBITDA / Finance Cost 1.8 1.6 1.7 3.5
b. FCFO / Finance Cost+CMLTB+Excess STB 1.0 1.1 1.0 1.9
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 5.1 3.9 5.5 2.5
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 63.6% 60.8% 67.5% 62.8%
b. Interest or Markup Payable (Days) 80.4 80.3 118.0 108.5
c. Entity Average Borrowing Rate 12.9% 18.5% 15.6% 9.4%

Apr-25

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Mahmood Textile Mills Limited

rating scale

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Apr-25

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Mahmood Textile 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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Apr-25

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