Karachi: Tata Textile Mills Ltd. remains a significant player in Pakistan's textile sector, even as the country's spinning industry faces hurdles such as reduced cotton production and rising energy costs. The Pakistan Credit Rating Agency Limited (PACRA) has upheld the company's entity ratings, acknowledging its strong market position and financial stability post-merger with Salfi Textile Mills, Island Textile Mills, and Tata Energy Limited.

Pakistan's spinning industry, valued at approximately PKR 775 billion, comprises around 368 spinning units with a capacity of 13.4 million spindles as of FY24. However, cotton production estimates have been revised to 10.9 million bales, with actual production reaching only about 5.5 million bales, underscoring a significant shortfall. This has increased the country's imported cotton requirement to 4 million bales this year.

The rise in energy tariffs has further strained the industry, affecting cash flow and liquidity. Despite some reduction in financial charges, the sector's high working capital needs have led to a 'Watch' status on outlooks.

Tata Textile Mills, operating with 127,092 spindles post-merger, serves both domestic and international markets, generating 22.65% of its revenue locally and 77.35% internationally. In FY24, the company saw a 31% revenue increase, driven by export sales. However, a revenue decline of 8.4% was observed in the first nine months of FY25 due to reduced demand. High raw material costs and elevated energy expenses have pressured margins.

The company is expanding its captive energy capacity through solar installations to mitigate energy costs. While interest rate reductions have improved profitability, the working capital cycle remains prolonged and is managed with short-term borrowing. Tata Textile's ratings are bolstered by a strong equity base and experienced management.

Looking ahead, the company focuses on restoring profit margins and managing working capital effectively to maintain financial risk at low levels. The ratings depend on the company's ability to enhance business margins and sustain profitability while ensuring effective liquidity management.