The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of Siddiqsons Limited

Rating Type Entity
(24-Jun-22 )
(24-Jun-21 )
Action Maintain Maintain
Long Term A- A-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - Yes

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. Siddiqsons mainly derives its revenue from the manufacturing and sale of denim in addition to having a portfolio of strategic investments. During 9MFY22, revenues of the company achieved sizable growth of ~49% YoY on the back enhanced volumes which further supplemented by rupee depreciation. Over the last few years, the business profile has strengthened manifold. Accordingly, rating watch has been removed. Sales mix remained dominated by healthy exports. Similarly, margins recorded favorable increase. Denim industry enjoys relatively better margins that are reflected in the Company's profitability. Meanwhile, the diverse investment portfolio generates steady investment income, mainly in the form of dividends and rental income, supporting the Company's bottom line. The Company is diversifying its product slate to enhance outreach to export avenues. The financial matrix reveals efficient leveraging, strengthened coverage and adequate working capital cycle. The ratings incorporate financial strength and proven track record of the sponsoring family. During 9MFY22 (Jul21-Mar22), Pakistan textile exports surged to $14.2bln (recording growth of 25%) as compared to $11.3bln in the same period last year. This is attributable to increase in demand for textile products internationally and channeling of export orders towards Pakistani market. On a YoY basis, the exports of raw cotton, cotton (carded or combed) and cotton cloth recorded notable growth. However, month on month basis, textile exports have declined by 3.5%. Going forward, the textile sector’s outlook is expected to stay good in the medium term where demand for textile products is expected to sustain.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. The management is cognizant of these challenges and is working on this front. Meanwhile prudent working capital management and generating sustainable cashflows from core operations are important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings.

About the Entity
Siddiqsons Limited was incorporated as a public unlisted company in 1987. The Company is engaged in the production and sale of denim yarn, fabric and garments. Siddiqsons is a vertically integrated composite textile unit with production facilities located at Hub and Karachi. The Company has 26,832 spindles and 265 looms. The weaving unit has a capacity of producing ~31 million meters of denim every year. The company is self-sufficient in energy through captive power generation. The majority stake in the Company is owned by the Tariq family. Yousuf Adil, the Chartered Accountants, are the auditors of the company. The auditors have qualified the audit report based on treatment of the investment property in the financial statements for the period ended 31 Dec 2020. Overall control of the Company vests in the 4 member Board of Directors. There are no independent or non-executive directors on the board. Mr. Tariq Rafi is the Chairman and CEO of Siddiqsons and is a recipient of the coveted Civil Award Sitara-e-Imtiaz. He has extensive experience in textile, banking and real-estate sectors. Mr. Abdul Rahim, son of Tariq Rafi, is the current COO of the Company and is assisted by an able and experienced management team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.