PACRA Maintains Entity Ratings of Siddiqsons Limited

Siddiqsons Limited, the flagship company of Siddiqsons group, is the pioneer of the denim industry in Pakistan. The company has managed to increase its top line, mainly from growth in local sales. The company's top line is driven mainly by exports, with Bangladesh as the prime export location. However, the share of exports in top line is declining over the years due to high competition in the international market. The gross margins of the company remain under pressure, due to higher raw material prices. However other costs stayed under control as the company sustained its operating margins. The Pak rupee devaluation in the recent period is expected to have a positive impact on the exports front as it will increase the export competitiveness compared to regional peers. The withdrawal of zero-rated status of textile industry in Finance Bill 2020 coupled with increasing interest rates may put pressure on margins and liquidity across the industry. Ratings draw comfort from income generated from the sizable strategic investments made by the company in banking, energy, real-estate, construction and metal industries. The company's high inventory needs during cotton procurement season gave rise to increased working capital requirements. However, the company's financial profile remains strong with low leveraged capital structure and strong coverages. Ratings reflect sponsors ability to provide support when required, as demonstrated in the past.
The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape while also improving the margins. Sustainability of investment income remains important. Meanwhile, excessive borrowing, leading to higher leverage, and/or deterioration in coverages can impact the ratings negatively. A strong governance framework will be important, going forward.

About the Entity
Siddiqsons Limited was incorporated 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 26,256 spindles, 265 looms and has the capacity to produce ~21mln kgs yarn per year, 2.6mln meters of denim fabric and 1mln pieces of garments per month. The company is self-sufficient in the energy production and has the capacity to produce 28MW energy. The majority stake in the company is owned by Tariq family (89%) while rest (11%) is owned by the friends of the family.

Overall control of the board vests in 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. Mr. Abdur Rahim, son of Tariq Rafi, is the current COO of the Company and is assisted by an able and experienced management team.