The Pakistan Credit Rating Agency Limited
Press Release


Iram Shahzadi

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PACRA Maintains Entity Ratings of Sapphire Retail Limited

Rating Type Entity
(14-Dec-22 )
(17-Dec-21 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Sapphire is a leading and reputable brand, with a history of the last few decades, in the bigger textile space. The group has also built a formidable presence in the retail world under Sapphire Retail. The Company operates a complete range of clothing brands targeting various segments (unstitched, stitched, accessories, etc) of the retail market. Sapphire Retail has a network of over 42 stores in Pakistan. Apart from the physical stores, the online store is also generating huge traffic. The Company employs experienced professionals, aided by comprehensive reporting, who look after the operations of the Company with complete autonomy. Sales have exhibited significant growth, with higher brand recognition developed over the years. The Company possesses strong margins at the gross level, while net margins reflected meager improvement due to controlled operating expenses. The net profitability of the company improved to PKR 783mln (FY21: PKR 533mln). The Company implemented a new ERP platform, which is expected to improve inventory management. The Company has a wholly-owned subsidiary Designtex (SMC-Private) Limited and is principally engaged in manufacturing, stitching, and trading of textiles and ancillary products. The strong financial profile is characterized by strong coverages, moderately leveraged capital structure, and improving working capital management. The management is in process of expanding its retail footprints to support growth, which is expected to contribute towards margin improvement through economies of scale. Positive prospects for the retail clothing industry in view of our social demographics, an increase in internet penetration bodes well for the Company, however, in the backdrop of rising inflation and pressure on GDP growth, the sector remains vulnerable to possible demand overhang. During 5MFY23, textile exports were valued at $7.44bln compared to $7.76bln, reflecting a 4% dip YoY – the declining trend recorded in the last two months. The fall in export value has mainly come from volumetric decline as prices of almost all categories have either increased or stayed flat. This has taken a fiscal year to date exports into negative with a 1.4% decline in the first four months (July – October) FY23. Moreover, 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 due to prolonged downturns in capital markets.

About the Entity
Sapphire Retail Limited – a public, unlisted entity – commenced operations in 2014 and engaged in carrying out the manufacturing of textile products by processing the textile goods in outside manufacturing facilities and operating retail outlets to sell the same in Pakistan and abroad through E-store. Sapphire Retail is wholly owned by Sapphire Textile Limited. Sapphire Group is one of the largest vertically integrated textile setups in Pakistan which includes Sapphire Fibers Limited, Reliance Cotton Spinning Mills Limited, Sapphire Finishing Mills Limited & many others. Overall control vests with a five-member Board of Directors, dominated by the sponsoring family: five family members, including the CEO. The CEO, Mr. Nabeel Abdullah, belonging to the sponsoring family, possesses expertise in textiles and has a future-oriented region for the Company.

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.