("Diamond Fabrics Limited" or "DFL") was incorporated as a private limited Company in Pakistan on February 10, 1988, and later converted into a public limited Company on October 8, 1988.

DFL is a prominent business venture of the Sapphire Group, operating as a vertically integrated textile manufacturer with a diversified product portfolio. In recent years, the Company has undertaken strategic capacity expansions, particularly within its Apparel Division, to strengthen its market presence and cater to growing customer demand. Further enhancing its level of vertical integration, the Company has recently diversified into dyed yarn and sewing thread production, reinforcing supply chain efficiencies, broadening its product offering, and supporting long-term sustainable growth.

The Company is engaged in the manufacturing and sale of yarn, fabric, and ready-made garments, supported by a vertically integrated operating model. Its diversified product portfolio comprises 100% cotton, polycotton, greige, bleached, dyed, and printed fabrics, catering to a broad range of domestic and international customer requirements. The Company's manufacturing infrastructure includes 24,480 spindles and 346 looms, while its denim unit has an annual production capacity of approximately 30mln meters of fabric. Additionally, the apparel division is capable of producing approx. 15.6 mln pieces of garments annually. The Company operates through strategically located facilities, with its registered office in Karachi, corporate head office in Lahore, and manufacturing facility in Sheikhupura, enabling efficient production and nationwide operational support.

DFL's entire stake is owned by the Sapphire Group, through the associate companies and individual holdings.

Since its inception, the Company's ownership structure has remained unchanged, a trend expected to continue in the foreseeable future, supported by its affiliation with the Sapphire Group. The Company continues to benefit from the leadership and guidance of the successors of Mr. Mian Mohammad Abdullah and his four sons, Mr. Shahid Abdullah, Mr. Nadeem Abdullah, Mr. Amer Abdullah, and Mr. Yousaf Abdullah, who are actively engaged in the management and strategic direction of the Group’s diversified business. The involvement of the third generation in the business like Mr. Ali Abdullah, Mr. Tayyab Abdullah and Mr. Mustafa Abdullah further indicates the continuity of family ownership and management.

Sapphire Group has gone through multiple economic cycles but the growth remained intact since 1970. With more than five decades of extensive experience in the textile, energy, retail, and dairy industries, the sponsors possess exceptional business acumen and strategic insight. Their diverse expertise underscores their capability to drive growth and innovation within the organization.

You can incorporate the Sapphire Group companies as follows in a PACRA-style report: The financial strength of Diamond Fabrics Limited (DFL) is underpinned by its association with the Sapphire Group, one of Pakistan's leading diversified business conglomerates with an annual revenue of approximately USD 1,035mln, of which nearly USD 1,015mln generated by textile operations. The Group's textile footprint spans the entire value chain through flagship entities including Sapphire Textile Mills Limited, Sapphire Fibres Limited, Sapphire Finishing Mills Limited, and Diamond Fabrics Limited, complemented by businesses in retail (Sapphire Retail Limited), energy (Sapphire Electric Company Limited and Sapphire Wind Power Company Limited), and dairy (Sapphire Dairies (Private) Limited). The Group's diversified business profile reflects its strong financial capacity to support to DFL, if needed.

The Company has an eight-member board including the CEO, Mr. Amer Abdullah. The board also included the group CFO of Sapphire Group, Mr. Abdul Sattar. All other members are representative of the sponsoring family. The inclusion of an independent director on the board will strengthen the governance framework of the Company.

Mr. Mian Mohammad Abdullah, the Chairman of Sapphire Group possesses an extensive experience of over 50 years in the local industry. He has been bestowed with Pakistan's top civilian award, the Sitara-e-lmtiaz twice. Mr. Shahid Abdullah, the CEO of Sapphire Fibres Limited and Sapphire Electric Company Limited, holds a bachelor's degree in commerce from the University of Karachi. Mr. Nadeem Abdullah earned his degree from McGill University in Canada and serves as the CEO of Sapphire Textile Mills Limited.

In line with best corporate governance practices, the establishment of formal board committees will enhance the board's effectiveness. Board meetings are held regularly to review financial performance and assess progress toward strategic objectives. During FY25, attendance of the BOD members remained strong in meetings, reflecting their dedication and commitment. While draft meeting minutes have been documented, there is room for improvement.

To align with high standards of transparency, the Company has appointed M/s. ShineWing Hameed Chaudhri & Co. as its external auditors. The firm is classified in Category 'B' by the State Bank of Pakistan's panel of auditors.  The auditors expressed an unqualified opinion on the Company's financial statements for the period ended June 2025.

The Company has maintained a well-structured organizational framework to ensure the smooth flow of operations. To address the diverse operational requirements, the core functions have been segregated into four divisions, namely 1) Spinning Division, 2) Weaving Division, 3) Denim Division, 4) Apparel Division. Each division is headed by a Managing Director and a Co-Managing Director, both of whom report directly to the Company's Chief Executive Officer (CEO).

The CEO, Mr. Amer Abdullah is a key decision-maker in Diamond Fabrics Limited and Sapphire Dairies (Pvt). Limited. He holds a Master's degree in Business Administration from the United States. Mr. Hassan Asif, the Director Finance, is a fellow Chartered Accountant and reports to Mr. Ali Abdullah. He brings with him an extensive experience of over 15 years. He is supported by a team of qualified and experienced professionals. Most of the senior management has been associated with the Company for a reasonable time period.

While there are no formal management committees in place, the Company ensures effective oversight and coordination through the regular generation of MIS reports. These reports covering key aspects of daily operations are submitted to senior management for review and discussion. Additionally, the need-based meetings are conducted to address specific operational issues and facilitate timely decision-making.

Given the large scale of operations spread at various locations and divided into various segments and processes, the need for quality information systems is paramount to control and maintain the efficiency of operations. During the period under review, the Company completed the implementation of its new IT infrastructure along with the deployment of the SAP S/4HANA system. This strategic initiative marks a significant achievement in the digital transformation journey and provides a strong foundation for enhanced operational efficiency, improved internal controls, better data visibility, and more effective decision-making.

The Company's products are Oeko-Tex® certified and comply with the human-ecological requirements of the current standards for textiles intended to come into direct contact with the skin. The certified products meet the criteria set by REACH regulations, including restrictions on substances such as azo dyes and nickel. Additionally, they adhere to U.S. compliance standards, except accessories made from glass, reflecting the Company’s commitment to a strong and well-controlled production environment.

The textile sector continues to operate in a challenging environment characterized by volatile cotton prices, elevated utility tariffs, exchange rate fluctuations, and subdued global demand. Nevertheless, Pakistan's export-oriented textile industry continues to benefit from its established manufacturing base and strong contribution to the country's exports. The Company's vertically integrated operations provide operational flexibility and partially mitigate external supply chain disruptions. However, profitability remains susceptible to fluctuations in raw material costs, energy prices, and international demand conditions.

With an overall production capacity of 24,480 spindles, 346 looms, and 2,200 stitching machines, the Company falls in the mid-tier of the respective universe.

Exports continue to constitute the predominant share of the Company's revenue base. During FY25, the Company delivered a robust topline growth of 19.6% year-on-year, with revenue increasing to PKR 50.1bln from PKR 41.9bln in FY24. Export sales remained the principal revenue driver, contributing PKR 43.0bln, while domestic sales represented only a marginal share of the overall revenue mix. The topline expansion was primarily underpinned by a substantial increase in garment sales volumes, coupled with the Company's competitive pricing strategy in international markets. This performance was achieved despite a stable exchange rate environment and persistent inflationary pressures on production costs, reflecting a trend observed across the broader textile industry. Conversely, the fabric segment exhibited relatively subdued growth during the period. The Company has established a geographically diversified export portfolio, reducing its reliance on any single market. Its principal export destinations include Germany, the United States, the Netherlands, Bangladesh, Spain, the United Arab Emirates, and others. Customer concentration remains slightly elevated, with the top ten customers accounting for a significant proportion of export revenues. Nevertheless, the associated concentration risk is partially mitigated by the Company's enduring relationships with a portfolio of blue-chip international clients, including globally recognized brands such as Levi's, ITX Trading S.A., Van Delden Textile GmbH, Urban UK, BESTSELLER A/S, CELIO, and several others. These long-standing commercial relationships underscore the Company's established market position and enhanced revenue visibility. The growth trajectory remained intact during 9MFY26, with the Company generating a topline of PKR 40.2bln, reflecting the continued resilience of its export-led business model.

During FY25, the Company's profitability remained under pressure despite continued revenue growth. Gross profit improved to PKR 8.8bln from PKR 7.9bln in FY24; however, the gross profit margin declined to 17.6% from 19.1%, reflecting higher input and operating costs. Operating profit decreased to PKR 3.0bln from PKR 3.3bln, with the operating margin contracting to 6.0% from 8.0%. Similarly, the PBIT margin weakened to 6.6% compared to 9.2% in FY24. The Company reported a net profit of PKR 351mln, significantly lower than PKR 1.0bln in FY24, as the net profit margin declined to 0.7% from 2.5%. The erosion in profitability was primarily attributable to margin compression across operations, coupled with a substantially higher effective tax rate of 72.7% (FY24: 30.5%), which more than offset the benefit of lower finance costs. Nevertheless, finance cost as a percentage of sales improved to 3.7% from 5.2% in FY24, reflecting relatively better financing efficiency. During 9MFY26, the gross profit margin moderated further to 16.9%, while the net profit margin declined to 0.1%.

The management has undertaken strategic investments in sewing and dyed yarn facilities to enhance vertical integration, improve supply chain efficiency, and strengthen operational capabilities. In line with its sustainability objectives, the Company has also invested in solar energy and plans to install a biomass turbine to further optimize energy costs and reduce reliance on conventional power sources. Going forward, the Company's growth strategy is centered on increasing business volumes and maximizing capacity utilization. Management intends to reinvest internally generated profits to support future expansion while, over the medium term, reducing leverage as the planned capacities become fully operational.

The Company's working capital profile remained broadly stable during 9MFY26. Average inventory days improved marginally to 100 days from 102 days in FY25, primarily due to better management of finished goods inventory. However, trade receivable days increased slightly to 30 days from 29 days, resulting in an unchanged gross working capital cycle of 131 days. Consequently, net working capital days increased modestly to 112 days from 108 days. The Company maintained a comfortable liquidity position, with the current ratio remaining unchanged at 2.8x, supported by current assets of PKR 25.6bln against current liabilities of PKR 9.0bln.

In 9MFY26, the Company's e Free Cash Flow from Operations (FCFO) clocked at PKR 2.0bln from PKR 3.2bln. Consequently, the EBITDA coverage ratio moderated to 2.1x from 2.2x in FY25, while FCFO to Finance Cost declined to 1.5x from 1.7x. Despite a decrease in operating cash generation, net cash generated from operating activities improved primarily due to relatively favorable working capital movements. The debt payback period further extended during the period, due to a decrease in internal cash generation relative to debt obligations. Overall, the Company's coverage indicators remain under pressure and are expected to improve through enhanced profitability and stronger cash flow generation, going forward.

The Company's capital structure remained highly leveraged during 9MFY26. Total borrowings increased to PKR 32.4bln from PKR 29.2bln in FY25, resulting in a marginal increase in total leverage to 77.4% from 76.4%. The borrowing mix improved slightly, with short-term borrowings accounting for 49.5% of total borrowings compared to 52.4% in FY25, reflecting a modest shift toward longer-tenor funding despite the continued reliance on borrowings to finance working capital requirements. Meanwhile, the Company's equity base strengthened to PKR 9.5bln from PKR 9.1bln, providing modest support to capitalization. Going forward, the gradual reduction in leverage remains essential for the assigned ratings.