Analyst
Faizan Arif
faizan.sufi@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Assigns Initial Entity Ratings of Sapphire Fibres Limited
Rating Type | Entity | |
Current (29-May-18 ) |
||
Action | Initial | |
Long Term | A+ | |
Short Term | A1 | |
Outlook | Stable | |
Rating Watch | - |
The ratings reflect Sapphire Fibres Limited (Sapphire Fibres) established business profile emanating from strong presence in the broader value-chain; enabling the company to manage volatility in textile business. Business risk profile has been improved with diversification into denim segment, which started operations effectively beginning FY17. Concerted efforts on cost efficiencies led to improved margins in all segments, whereas denim margins are improving relative to first year of operations. Overall margins would strengthen once denim touches optimal capacity utilization and achieves target market penetration. In second phase, the company has embarked to double the capacity of denim weaving unit in FY19, aiming to fully capitalize market potential. A sizeable investment book (PKR 14bln / 81% of equity), built over the years by deploying surplus funds augments company’s profile significantly. It generates sizeable stream of recurring non-core income in the form of dividend and capital gains, supplementing bottom-line. This provided ample cushion to bear financial burden for expansion; gearing clocks in at 44% at end-Mar18. Financial risk profile remains in comfortable range with debt service-coverage-ratios taking support from recurring non-core income. Ratings incorporates association of the company with well-established Sapphire group.
The ratings are dependent upon sustained business profile of the company, herein achieving desired off takes from denim are important. This should benefit in improved margins and, hence, profitability. At the same time, sustainability of non-core income and prudent management of the surplus funds are important. Sustainability of coverages would remain critical.
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. The company operates with 101,136 spindles and 64 looms at end-Mar18, while 32 looms are planned to reach port by Jun18. The company has made separate business units for its business which includes (i) Spinning, (ii) Weaving, (iii) Knitting, iv) Dyeing and (v) Garments; each is profit center. Sapphire Fibres is the flagship company of Sapphire Group (SG), which collectively owns majority (~85%) stake in the company; directly through individuals (~33%) and group companies (~52%). Remaining (~15%) stake is well spread among institutions and the general public. Sapphire Fibres have interest in textile, power and cement sectors.
Overall control vests with eight-member BoD, dominated by the sponsor family: five family members, including CEO, two independent directors and one non-executive. The CEO, Mr. Shahid Abdullah, belonging to sponsor family, is a business magnate, and oversees the company affairs. He is assisted by professional and experienced management team.