PACRA Maintains Entity Ratings of Siddiqsons Limited

Siddiqsons Limited (“Siddiqsons” or “the Company”) is the flagship company of the Siddiqsons group and is considered a pioneer of the denim industry in Pakistan. The revenue base of the Company emanates from the five textile business divisions, including Denim Fabric, Home Textiles, Spinning, Garments & Knits. The export segment mainly contributes to the company’s top line, with the USA and Europe being their prime export avenues. During 9MFY24, sales of the Company have shown growth of 29.7% YoY mainly contributed by price hikes in international markets. The business strategy of the Company vests in sustainable top-line growth while generating a green bottom line. Over the last few years, the business profile has strengthened manifold. Over the years Siddiqsons has executed CAPEX for BMR to improve manufacturing facility efficiency resulting in an increase of operating fixed assets to PKR 8.3bln. The denim industry enjoys relatively better margins reflected in the Company's profitability. The gross margins of the Company have shown improvement depicting an efficient price transferability matrix and maintaining the cost of production at an optimal level. However, escalated finance costs and tax burdens have impacted the net margins of the Company. The Company has maintained an investment portfolio in real estate and blue-chip companies in the stock exchange to generate steady investment income, mainly in dividends and rental income, to augment their liquidity profile and supplement the Company's bottom line. The Company is diversifying its product slate to enhance outreach to export avenues. The financial risk profile of the Company is considered moderate with a stretched working capital cycle depicting the industry norm. The working capital requirement of the Company is met through a mix of internally generated cashflows and short-term borrowings. The Company has maintained a leveraged capital structure with moderate coverages and cashflows. The ratings incorporate the financial strength and the proven track record of the sponsoring family. The size of the textile industry in Pakistan is estimated to be PKR 2.62Trn in LSM (Large Scale Manufacturing) ~3.0% of the total GDP as of FY23. The composite & garment segment in the textile sector has a contribution of ~ PKR 1.6Trn mainly dominated by knitwear, readymade garments, bedwear, and towels followed by PKR 775bln from spinning and PKR 637bln from weaving. The escalation in energy tariffs & finance costs, PKR devaluation, and ensuring the availability of optimum quality raw materials are prime challenges specific to the industry to assess the international market and stay price-wise competitive.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. The prudent working capital management and generating sufficient cash flows from core operations while maintaining comfortable coverages remain critical. The adherence to debt matrix at an optimal level is a prerequisite for assigned ratings

About the Entity
Siddiqsons Limited, incorporated in 1987, produces and sells denim yarn, fabric, and garments. The vertically integrated textile unit operates in Hub and Karachi, with 26,832 spindles and 265 looms, producing ~31 million meters of denim annually. The sponsoring family owns the majority stake, and Yousuf Adil Chartered Accountants are the auditors. The auditors have qualified the audit report for not recognizing GIDC liability from 2016 to 2020. The 4-member Board of Directors, without independent or non-executive directors, oversees the company. Mr. Tariq Rafi, Chairman and CEO, has received the Sitara-e-Imtiaz award. His son, Mr. Abdul Rahim, is the COO, supported by an experienced management team