Press Release
JCR-VIS Assigns Initial Ratings to Masood Textile Mills Limited
Karachi, June 29, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A-Minus/A-Two) to Masood Textile Mills Limited (MTM). Outlook on the assigned ratings is ‘Stable’.
The ratings assigned to MTM incorporate its sound business profile with the company being one of the largest knitwear exporters in Pakistan. The ratings also take into account presence of Chinese sponsorship in the company; MTM is presently the only textile company in Pakistan having Chinese stake. The company gains synergistic benefits from the said association in terms of expertise in the value added segment. While debt service coverage is expected to remain comfortable, leverage indicators are considered to be relatively high.
Product portfolio of the company primarily include T-shirt, polo shirt, jogging suit, Henley shirt, Raglan shirt, tank top, bikini, shorts, pants and sleepwear. Sales of MTM majorly comprise export sales that have been primarily concentrated in North America. Over the last few years, the company has been able to tap other export avenues including Europe, Asia and Ocean Pacific region in order to rationalize geographical concentration; the same is evident given decline in revenue concentration on a timeline basis.
While sales remained largely stagnant, profitability stood higher primarily on the back of higher gross margin and lower finance cost during FY17. Recently, the company embarked upon a Balancing, Modernization & Rebalancing (BMR) project in order to produce high quality value added apparel. The BMR project has translated into higher net sales and profitability during 9MFY18 vis-a-vis corresponding period last year. Going forward, profitability and margins are projected to enhance mainly owing to sale of value added apparel which fetches higher price per unit.
Given extended cash cycle, working capital requirements are being primarily managed through procurement of short-term borrowings. Gearing and debt leverage increased by end-1QFY18 on account of procurement of additional debt for BMR and higher short-term borrowings. Gearing level is projected to decrease gradually, though is expected to remain high. On account of higher profitability, Funds from Operations (FFO) increased during 9MFY18. While cash flows in relation to long-term debt repayments is expected to remain sufficient, FFO-to-total debt is projected to remain low mainly on account of large quantum of short-term borrowings to finance increasing working capital requirements.
For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.
Javed Callea
Advisor
Applicable rating criterion: Industrial Corporate (May, 2016)
http://jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf