The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of Sapphire Fibres Limited

Rating Type Entity
(23-Nov-22 )
(23-Nov-21 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect Sapphire Fibres Limited’s (Sapphire Fibres) established business profile emanating from a strong presence in the broader value chain; enabling the Company to manage volatility in the textile industry. On one side from producing a range of finer quality yarn, the Company is also engaged in dyeing, knitting, stitching, and manufacturing denim fabric. The business profile, mainly emanating from enhanced contribution from the spinning segment, has recorded a sizable increase. However, the volumetric analysis reflects a largely sustained pattern where the major benefit taken is from high yarn prices as well as rupee devaluation during the year. During FY22, the contribution of exports to the topline improved YoY (FY22: PKR 38.2bln, FY21: PKR 22.2bln). Selling and marketing expenses increased YoY where as other income inched up (FY22: PKR 1.4bln, FY20: PKR 1.2bln). The net profitability of the company improved to a historically high PKR 6.2bln (FY21: PKR 2.2bln). The financial risk matrix reflected largely the same trend. Free cash flows from operations remained in a comfortable range due to the good performance of core operations. The company witnessed a slight decline in coverages and margins in 1QFY23. A sizable investment book built over the years by deploying surplus funds supports the Company’s liquidity profile. Ratings incorporate the association of the company with the well-established Sapphire Group which enjoys a distinguishing presence in several sectors. During FY22, Pakistan's textile exports surged to $19.3bln (recording a growth of 26%). Exports grew owing to increased volumetric growth of (16% YoY) in the value-added segment, a steep rise in global demand. Under the value-added category, the knitwear segment remained the top performer by posting 34% YoY growth in exports to $5.1bln in FY22 due to a sharp rise in global demand, especially in the US and European countries. From July to August 2022, the cumulative exports of knitwear increased by 15.4% to $1.32bln; cotton cloth by 4.2% to $580.5mln, and readymade garments by 5.9% to $911.5mln over their exports in the same period of last year. However, bed wear exports were down 2.9% to $780mln, towels by 1.7% to $237.3mln, and cotton yarn sales declined by 18%. A slowdown is expected in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries.
The ratings are dependent on sustaining the business profile of the Company by maintaining profitability and margins achieved from core textile operations. At the same time, the sustainability of non-core income and prudent management of surplus funds are important. The sustainability of coverages would remain critical to avoid any drag on the financial profile.

About the Entity
Sapphire Fibres Limited - listed on Pakistan Stock Exchange - commenced operations in 1979. Sapphire Fibres is a vertically integrated composite textile unit, manufacturing specialized cotton yarn, fabric, and garments. It is the flagship company of Sapphire Group, which collectively owns a majority stake in the Company; directly through individuals (~14%) and group companies (~52%). The remaining (~34%) stake is well spread among institutions, modaraba and mutual funds, and the general public. Overall control vests with an eight-member BoD, dominated by the sponsor family: five family members, including the CEO, two independent directors, and one non-executive. Mr. Amer Abdullah has ceased to be the Chairman of the Board as of September 23rd, 2021, and Mr. Hassan Abdullah has been appointed as the chairman of the board. The CEO, Mr. Shahid Abdullah, belongs to the sponsor family, is a business magnate, and oversees the company affairs. He is assisted by a professional 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.