Maqbool Textile 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
14-Feb-25 BBB A2 Stable Downgrade YES
16-Feb-24 BBB+ A2 Stable Maintain YES
18-Feb-23 BBB+ A2 Stable Maintain YES
19-Feb-22 BBB+ A2 Stable Maintain -
20-Feb-21 BBB+ A2 Stable Maintain -
About the Entity

MTML, incorporated in 1989, is a public listed Company. The Company has an installed capacity of 82,224 spindles and 576 MVS spindles. MTML is primarily owned by the Maqbool family (75.20%) and others (24.8%). The board comprises ten members. Out of this, four directors are non-executive, three directors occupy executive roles, and three directors are independent. Seven board members represent the Maqbool family. Mr. Mian Tanvir Ahmed Sheikh, the CEO, carries with him extensive experience in the textile sector and is supported by an experienced management team.

Rating Rationale

The rating decision of Maqbool Textile Mills Limited (“the Company” or “MTML”) reflects its stressed business fundamentals, which adversely impact its business risk and financial risk profile. This is driven by consistent losses over the last three quarters, significantly eroding the Company’s equity and leading to liquidity constraints and a debt overhang. The Company is currently facing three key challenges: (i) an increase in yarn imports under the EFS scheme, leading to the underutilization of existing capacities due to reduced local demand in 1QFY25; (ii) reliance on short-term borrowings to bridge the funding gap, resulting in soaring finance costs; and (iii) escalating energy tariffs. However, the Company's management anticipates gaining momentum in the coming quarters, primarily driven by the installation of a 3-megawatt solar power plant as part of its renewable energy initiatives, along with a continued decline in the policy rate. These factors are expected to provide relief from the ongoing financial squeeze. The two companies primarily operate under the umbrella of the Maqbool Group which includes (i) Mehmooda Maqbool Mills Limited and (ii) Maqbool Textile Mills Limited. The Company product slate and revenue streams primarily divest into four categories which include CVC yarn, PC yarn, PV yarn, and PP yarn. During FY24, MTML recorded 4.8% topline growth, primarily driven by increased production and sales of 30s-count yarn. However, in 1QFY25, the Company's sales declined to PKR 1.76bln (1QFY24: PKR 3.18bln) due to a drop in local yarn demand, as imports served as a substitute, coupled with unfavorable pricing dynamics. Energy costs represent the primary risk factor for the sustainability of the Company’s cost structure, as evidenced by an 83.16% increase in power and fuel costs, which significantly dilutes profitability. This is further compounded by finance costs of PKR 767mln, resulting in a net loss of PKR 698mln. The Company's financial risk profile is negatively affected by a deterioration in its credit quality metrics. MTML needs to rationalize its funding structure by securing an equity injection from its sponsors and implementing a strategic plan to strengthen its business fundamentals, ensuring its continued competitiveness. Textile exports reached USD 16.7bln in FY24, up 0.93% YoY from USD 16.5bln. The composite and garments segment led with USD 9.1bln, followed by weaving at USD 6.5bln and spinning at USD 1.0bln. In 5MFY25, exports stood at USD 7.6bln.

Key Rating Drivers

The ratings are dependent upon the Company’s ability to improve its performance in terms of business volumes and core profitability from operations. Maintaining optimal capacity utilization, generating sufficient cash flows, and improving coverage ratios remain critical to the ratings. An equity injection from sponsors is essential to alleviate cash flow strain. The adherence to the debt matrix at an adequate level is a prerequisite for the assigned rating.

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

Maqbool Textile Mills Limited

rating analysis

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Profile
Legal Structure

Maqbool Textile Mills Limited (`MTML' or 'the Company') was incorporated in Pakistan on December 03, 1989,  as a public limited company under the repealed Companies Ordinance, 1984 (now Companies Act, 2017) and is listed on the Pakistan Stock Exchange. 




Background

Maqbool Group started operations in 1958, with the incorporation of a yarn spinning unit — Allawasaya Textiles & Finishing Limited. At present, the group has main interests in textile and seed oil extraction businesses. It was set up by the Maqbool family, a well-reputed business family of industrialists in Multan.


Operations

The Company is engaged in cotton ginning, manufacturing, and sale of yarn, cotton seed, and cotton lint. The company operates with four spinning units installed at Muzaffargarh (Unit I, II, and IV), and Tobatek Singh (Unit III), having a total operational capacity of 82,224 spindles (at Unit 1,2 & 3) and 576 MSV installed spindles (at unit-4) which equivalent to ~12,000 conventional spindles. The current energy requirement of the Company stood at 7 megawatts, which is primarily met through internally installed solar capacity, and electricity. The Company's registered office is located at 2-Industrial Estate Multan, Pakistan


Ownership
Ownership Structure

The sponsoring family holds a majority stake in the Company (65.1%) through group companies (9.8%) and individual holdings (55.3%), while the remaining shares are held by the general public (34.9%),


Stability

The second generation of the family has already been in business, serving in various capacities. No change in the ownership structure is anticipated in the foreseeable future. Furthermore, a formal succession plan will further improve the ownership profile of the Company. 


Business Acumen

MTML is one of the longest-established textile houses and has been operating under the Mian Tanveer Ahmed Sheikh for over three decades. Over this period, the company has developed significant expertise in spinning and successfully expanded its operations, demonstrating resilience and adaptability within the highly competitive textile industry. 


Financial Strength

Maqbool Group has also invested in Oil Extraction, Flour Milling, and various other trading businesses. Mehmooda Maqbool Mills Limited, one of the group companies has a top line of PKR 13.5bln as of FY24. As the flagship Company of its sponsors, it benefits from unwavering support when required.


Governance
Board Structure

MTML's board comprises ten members. Seven members are from the sponsoring family. Four members are non-executive directors, three directors carry the executive role and three are independent directors. Ms. Romana Tanvir Sheikh serves the role of Chairperson. The inclusion of independent oversight has strengthened the governance matrix of the Company.


Members’ Profile

Mr. Mian Tanvir Ahmed Sheikh is the Company's Chief Executive Officer. Tanvir Ahmad Sheikh is the renowned Industrialist of the Country having a Master‘s Degree in Business Administration from OHIO University, U.S.A. He has been quite successfully running the Complex Industrial Units of his Group since 1981. Mian Anis Ahmad Shiekh and Mian Atta Shafi Tanvir Sheikh occupy the executive roles on the board along with the CEO. Both directors have extensive experience in the textile sector. 


Board Effectiveness

The Board is supported by two specialized committees: (i) the Audit Committee and (ii) the HR & Remuneration Committee, which provide assistance on relevant governance matters. To ensure effective oversight and decision-making, board meetings are held regularly, with formal documentation of meeting minutes maintained.


Financial Transparency

M/s. Yousaf Adil & Co. Chartered Accountants are the external auditors of the Company. The auditors have issued an unqualified opinion on the Company's financial statements for the period ending June 30th, 2024.


Management
Organizational Structure

The organizational structure of the Company is divided into five main functions, namely i) Sales & Marketing, ii) Procurement, iii) Admin & Finance, iv) Production, v) IT. All operational departments report directly to the CEO, while the procurement department reports to the CEO and chairperson simultaneously. 


Management Team

The current CEO of the Company, Mr. Mian Tanvir Ahmed Sheikh has been associated with the company since its inception. Mr. Tanvir is a distinguished industrialist with a Master's degree in Business Administration from Ohio University, USA. He has been successfully managing a group of industrial units since 1981. Mr. EhsanUllah Khan holds the position of CFO in the Company. He holds an MBA degree and has been associated with the Company for the last two decades. 


Effectiveness

The management meetings are held daily with follow-up points to resolve or proactively address operational issues, if any, eventually ensuring a smooth flow of operations. However, no management committees exist and the establishment will augment the management profile of the Company.


MIS

The Company's operating environment depends upon an IT Infrastructure supported by an in-house programmed ERP. The IT system is fully integrated into all major departments and ensures proper financial and operational control. Daily reports include cash and bank position, stock consumption, per-spindle cost, receivables, and inventory status while monthly production accounts are also maintained.


Control Environment

Production is completely order-driven to avoid stock pile-ups. There is a quality control department in place to audit the quality of the output. HSE infrastructure seems appropriate and is emphasized. The Company has adequate relevant quality control standards to meet export requirements. The Company has in-house internal audit department. The head of internal audit is reportable to the CFO. 


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 5MFY25, the textile exports stood at USD 7.6bln. 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

The Maqbool family has been associated with the textile business since 1958. However, as a group and on a stand-alone basis, their market share in the spinning sector is moderate. The company has installed a capacity of 82,224 spindles along with 576 MVS spindles in its production facilities. Considering the the existing capacity, the Company is considered a mid tier player in the Spinning segment. 


Revenues

A major portion of the Company’s topline is generated through local sales. While the remaining portion is derived from the export sales. During FY24, the Company’s revenue base portrayed a marginal improvement at PKR 10.3bln (FY23: PKR 9.8bln) up by 5% YoY. The sales mix tilted towards the local market. The Company’s export sales indicated a substantial increase on a YoY basis recorded at PKR 1.6bln (FY23: PKR 376mln).  The local sales indicated a sizable decline of 11.5%, clocking at PKR 9.8bln (FY23: PKR 11.1bln). During 1QFY25, the Company's sales base clocked to PKR 1.7bln (1QFY24: PKR 3.1bln) due to a drop in local yarn demand, as imports served as a substitute, coupled with unfavorable pricing dynamics. 


Revenues
Margins

During FY24, the company’s gross margins decreased to 3.7% (FY23: 8.2%) attributable to the elevated energy cost of the Company(FY24: PKR 2.4bln, FY23: PKR 1.3bln) as energy cost to sales ratio witnessed significant incline to 23.5%(FY23: 13.4%) This translated into declined operating margins clocking in at 0.3% (FY23: 4.5%). Finance cost increased to stand at PKR 767mln (FY23: PKR 633mln). The company's net loss stood at PKR 698mln (FY23: PKR 250mln (loss)) owing to the high cost of production and high finance costs. Subsequently, the net margin decreased (FY24: -6.8%, FY23: -4.1%). During 1QFY25, the company’s gross margins declined to 4.5% (1QFY24: 11.2%). Net margin further decreased to -11.3% (1QFY24: 1.3%)


Sustainability

The company is actively pursuing sustainability by enhancing operational efficiency and profitability through regular Balancing, Modernization, and Replacement (BMR) initiatives. Additionally, the company is strategically reducing its energy costs by transitioning from WAPDA to solar power as energy costs constitute the primary risk factor for the sustainability of the Company’s cost structure, as evidenced by an 83.16% increase in power and fuel expenses, which has a significant impact on profitability.


Financial Risk
Working capital

At the end of Sept 24, the company's net working capital cycle extended to 90 days (Jun'24: 79 days, Jun'23: 85 days), mainly on account of higher inventory days (Sep'24: 97 days; Jun'24: 68 days). Trade assets of the Company indicated a sizable decline (Sep'24: PKR 3,081mln; Jun'24: PKR 3,356mln, Jun'23: PKR 3,684mln) The Company's short-term trade leverage stood at -17.8% (Jun'24: 21.4%). 


Working Capital Management
Coverages

During FY24, the Company's free cash flow from operations (FCFO) sizably decreased (FY24: PKR 111mln, FY23: PKR 379mln). Interest coverage declined (FY24: 0.0x; FY23: 0.6x) driven by the declined FCFOs and inclined finance cost. Likewise, debt coverage also declined (FY24: 0.0x; FY23: PKR 0.6x). During 1QFY25, the Company's FCFO diluted down to PKR 11mln, indicating stress on the Company's coverages. 


Coverages
Capitalization

At end-Sep24, the company's capital structure remained highly leveraged at 62% (FY24: 60.5%) as the total borrowings decreased (1QFY25: PKR 3,593mln; FY24: PKR 3,666mln). The short-term borrowing constituted 75.8% (FY24: 82.9%) of the total borrowings and stood at PKR 2,723mln(FY24: PKR 3,040mln).  The equity base of the company decreased to stand at PKR 2,205mln (Jun'24: PKR 2,389mln), mainly supplemented by the evaluation of fixed assets(FY24: PKR 2,091mln, FY23: PKR 1,581mln). The dilution in the equity base is attributable to the consistent losses sustained over two years, impacting the Company's reserves. 


Capital Structure
 
 

Feb-25

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Maqbool Textile Mills Limited

financial summary

(PKR mln)

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Sep-24
3M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 5,205 5,245 4,472 4,406
2. Investments 10 10 10 0
3. Related Party Exposure 0 0 0 0
4. Current Assets 3,367 3,834 4,019 3,604
a. Inventories 1,898 1,838 1,645 1,464
b. Trade Receivables 356 550 1,404 1,210
5. Total Assets 8,582 9,089 8,502 8,010
6. Current Liabilities 2,042 2,254 1,570 1,030
a. Trade Payables 556 633 720 425
7. Borrowings 3,593 3,666 3,632 3,414
8. Related Party Exposure 0 0 0 0
9. Non-Current Liabilities 742 780 670 683
10. Net Assets 2,205 2,389 2,629 2,883
11. Shareholders' Equity 2,205 2,389 2,629 2,883
B. INCOME STATEMENT
1. Sales 1,758 10,314 9,837 10,381
a. Cost of Good Sold (1,678) (9,934) (9,181) (9,232)
2. Gross Profit 80 380 656 1,149
a. Operating Expenses (83) (346) (360) (358)
3. Operating Profit (3) 34 296 790
a. Non Operating Income or (Expense) 1 (96) 31 27
4. Profit or (Loss) before Interest and Tax (2) (62) 327 818
a. Total Finance Cost (174) (767) (633) (313)
b. Taxation (22) 130 (93) (236)
6. Net Income Or (Loss) (198) (698) (399) 269
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 18 111 379 861
b. Net Cash from Operating Activities before Working Capital Changes (150) (638) (168) 609
c. Changes in Working Capital 239 686 100 (1,221)
1. Net Cash provided by Operating Activities 89 49 (68) (613)
2. Net Cash (Used in) or Available From Investing Activities (20) (150) (264) (355)
3. Net Cash (Used in) or Available From Financing Activities (60) (349) 191 991
4. Net Cash generated or (Used) during the period 9 (450) (141) 23
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -31.8% 4.8% -5.2% 41.2%
b. Gross Profit Margin 4.5% 3.7% 6.7% 11.1%
c. Net Profit Margin -11.3% -6.8% -4.1% 2.6%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 14.7% 7.7% 4.9% -3.5%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] -34.4% -27.8% -14.5% 10.8%
2. Working Capital Management
a. Gross Working Capital (Average Days) 120 96 106 108
b. Net Working Capital (Average Days) 90 72 85 98
c. Current Ratio (Current Assets / Current Liabilities) 1.6 1.7 2.6 3.5
3. Coverages
a. EBITDA / Finance Cost 0.4 0.4 0.9 3.3
b. FCFO / Finance Cost+CMLTB+Excess STB 0.0 0.0 0.3 1.9
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) -3.7 -3.2 -4.9 1.5
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 62.0% 60.5% 58.0% 54.2%
b. Interest or Markup Payable (Days) 99.6 87.8 95.7 92.5
c. Entity Average Borrowing Rate 18.7% 20.5% 15.8% 9.0%

Feb-25

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Maqbool Textile Mills Limited

rating scale

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Feb-25

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Maqbool 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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