Press Release

VIS Reaffirms Instrument Rating of Sukuk Issue of Masood Textile Mills Limited

Karachi, February 27, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed instrument rating at ‘A’ (Single A) of secured and privately placed Sukuk Issue of Rs. 2.5b (inclusive of green shoe option of Rs. 1.0b) of Masood Textile Mills Limited (MTML). There are total 14 equal quarterly principal repayments, 10 of which have already been made, with the final instalment due in Dec’24. Long Term Rating of ‘A’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Entity ratings of MTML are placed at ‘A /A-2’ (Single A /A-Two). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 14, 2022.

Started as a spinning unit in 1984, Masood Textile Mills Limited (‘MTML’ or ’the Company’) is a vertically integrated textile unit, having in house Spinning, Knitting, Fiber and Yarn dyeing, Fabric Dyeing & Processing, Laundry, Printing, Embroidery and Apparel Manufacturing facilities. MTML’s diverse product range encompasses yarn, fabric, loungewear, active wear, sleepwear, athletic and sportswear.

Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition. The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors. Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and liquidity constraints due to government delays in sales tax refunds. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk. Despite these challenges, textile companies have demonstrated resilience by maintaining operational efficiency, consistent product quality, strategic raw material procurement, and better supply chain control, achieving economies of scale and managing risks associated with the volatile business environment.

Assigned ratings also incorporate the strong growth trajectory witnessed by the Company, with net sales surpassing the Rs. 60.1 bn mark in FY23, reflecting an 11% Y/Y increase compared to FY22. This growth was primarily driven by higher average prices and rupee devaluation, with export sales constituting a significant portion of total sales. Additionally, technical support from Chinese investors has helped the Company to improve product quality for entry into the high-end market. Management's strategic shift towards high-end value-added branded products, including onboarding new customers, has contributed to an all-time high gross margin of 20.5% in 1QFY24. While net margins remained stable amid inflationary pressures and higher finance charges. Management anticipates a topline growth going forward.. Maintaining gross margins along with increase in net margins will remain a key factor from the ratings perspective.

The assigned ratings underpinned by the Company’s sound liquidity and capitalization profiles. Funds from Operations (FFO) along with cashflow coverages, particularly FFO/Long-term Debt ratio, and Debt Service Coverage Ratio (DSCR) witnessed an improvement in FY23 due to higher profitability. Despite a rise in debt level, the capitalization profile has marginally improved, given the expansion in equity base. The gearing and leverage indicators are expected to trend down further amid higher internal cash generation and reduced borrowings. Going forward, maintenance of the same will remain an important rating driver.

For further information on this ratings announcement, please contact Mr. M. Amin Hamdani at 021-35311861-64 (Ext. 217) and/or the undersigned at 021-35311861-64 (Ext. 201) or email at info@vis.com.pk.



Javed Callea
Advisor

Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .