PACRA Assigns Positive Outlook to Rainbow Hosiery (Pvt.) Limited

Rainbow Hosiery (Pvt.) Limited (‘RHPL’ or ‘the Company’) is primarily engaged in the manufacturing and exporting of home textiles and garments. The Company utilizes modern technology to manufacture high-quality products, including fitted bedsheets in various materials like Lycra, Microfiber interlock, Molton polyester, and Cotton, alongside a versatile range of apparel such as hooded jackets, creepers, polo shirts, zippers, and jogging suits. The processes of the Company are vertically integrated to enhance production efficiencies and to implement better cost control. Over the period Rainbow Hosiery has gone through different phases of capacity expansions in dyeing, knitting, and CMT (cut, make, trim). RHPL’s major exports diverted to Europe followed by the USA. The Company has diversified its portfolio by adding newer customers to reduce its concentration risk as the revenue is coming from numerous customers as opposed to dependency on a single customer. During 6MFY24, the composite and garment segment which includes, knitwear, readymade garments, and bedwear accounts for ~64% of total textile exports. However, both volumetric and value-wise improvements have been observed which is a positive sign. As per the management, during 6MFY24 company recorded sales of ~PKR 4,326mln (FY23: ~PKR 6,294mln) reflecting a growth of ~37.5% mainly due to volumetric increase, whereas margins improved at all levels. The company has formed several committees, including Emergency Response, Health & Safety, Environment & Waste Management, Work Council & Labor, and Fire Drill & Fighting. Each committee is overseen by an independent member. The governance structure depicts room for improvement due to the absence of a formal board structure, board committees, and independent oversight, furthermore, external auditors are only QCR-rated. The Company is in transition to adopt a better financial and internal control system. The Company has valid certifications for its products and facilities and is periodically audited by internationally recognized certification bodies i.e. OEKO Tex, Sedex, SANFOR KNIT Certificate, and Made in Green. The financial risk profile of the Company is comprised of low equity, however, cashflows are sufficient and the working capital cycle is adequate. The operations of the Company are managed through internally generated cash flows and there is no plan to obtain short-term and long-term borrowing facilities in the future. The Company has availed non-funded facilities from financial institutions.
The ratings are dependent on the firm’s ability to sustain its position amidst a changing business environment and management’s ability to run the operations of the Company optimally. With the upcoming growth in the firm’s business & volumes; prudent financial discipline and implementation of a stringent control environment shall remain imperative.

About the Entity
RHPL, incorporated in 1992, is a private limited concern principally engaged in the manufacturing and exports of home textiles and garments. The board comprises two members of the Lodhia Family. Mr. Mohammad Shahid Lodhia manages the overall business affairs of ‘RHPL’ as the CEO while Mr. Mohammad Lodhia (son of Mr. Shahid Lodhia) is the managing director of the Company and possesses ample business experience.