PACRA Maintains Entity Ratings of Sapphire Finishing Mills Limited
The ratings of Sapphire Finishing Mills Limited reflect the Company’s strong business profile emanating from an international presence in the broader value chain of late; enabling the Company to manage volatility in the textile industry. Sapphire Finishing is engaged in processing, dyeing, and finishing of the fabric, stitching of garments, and generation of power for self-consumption. During FY22, the contribution of exports to the topline recorded a healthy increase YOY (FY22: PKR 34.2bln; FY21: PKR 21.7bln). The selling and marketing expenses were enhanced YoY whereas the operating profit has witnessed an enormous increase (FY22: PKR 3.4bln; FY21: 1.8bln). The net profitability of the company improved to a historically high PKR 2.4bln (FY21: PKR 1.3bln). The Company’s margins have witnessed an improvement. Over the years, the Company has built a trading portfolio that exposes it to market risk exhibited by volatility in the stock market, though investments are made predominantly in blue-chip stocks. An investment book built over the years by deploying surplus funds supports the Company’s liquidity profile. The dividend income increased largely. The business and financial risk matrix of the company reflected largely the same trend. The debt structure is skewed towards long-term borrowings. Ratings further 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, and record-high cotton prices. Under the value-added category, the knitwear segment remained the top performer by posting 34% YoY growth in exports to $5.1 billion in FY22 due to a sharp rise in global demand, especially in the US and European countries. Other value-added segments such as ready-made garments, bed wear, and towel posted YoY growth of 29%, 19%, and 19% to $3.9 billion, $3.3 billion, and $1.1 billion respectively. From July to August 2022, the cumulative exports of knitwear increased by 15.4% to $1.32 billion; cotton cloth by 4.2% to $580.5 million, and readymade garments by 5.9% to $911.5 million over their exports in the same period of last year. However, bed wear exports were down 2.9% to $780 million, towels by 1.7% to $237.3 million, and cotton yarn sales declined by 18%. However, 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. The sustainability of non-core income and prudent management of surplus funds will be ratings critical.
Sapphire Finishing Mills Limited – a public, unlisted entity – commenced operations in 2003 and is engaged in the manufacturing of value-added textile products. The Company has made separate business units for its business which include (i) Processing, (ii) Work wear and iii) Fashion apparel; each being an individual profit center. Overall control vests with a seven-member Board of Directors, dominated by the sponsoring family: six family members, including the CEO. The CEO, Mr. Yousuf Abdullah, belonging to the sponsoring family, possesses expertise in textiles and oversees the Company affairs.