The Pakistan Credit Rating Agency Limited
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Muhammad Fahad Iqbal

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PACRA Maintains Entity Ratings of Sapphire Finishing Mills Limited

Rating Type Entity
(27-Nov-20 )
(28-Nov-19 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

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, business profile declined due to the negative impact of COVID-19 pandemic and withdrawal of zero-rated sales tax. During FY20, Company’s gross, operating and net margins also showed declined. 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 (~PKR 3bln, ~40% of equity) built over the years by deploying surplus funds augments the Company’s liquidity profile. Reduction in policy rates and the moratorium relief by SBP provided respite to the whole sector. The markets gradually opened in some parts of the world towards the end of 1QFY21. Going forward, the second wave of the pandemic has begun its course and lockdowns may be a cause of concern. However, the business community is expected to continue operations under strict SOPs, both; locally and in most of the export destinations of the Company. The Company took the SBP facility of deferment of the principal amount of the long-term loan. Financial risk of the company has breathing space due to the deferment facility resulting in an improvement in debt coverages. Ratings further incorporate the association of the Company with the well-established Sapphire Group.
The ratings are dependent on sustaining business profile of the Company by maintaining profitability and margins achieved from core textile operations. Sustainability of non-core income and prudent management of surplus funds will be ratings critical.

About the Entity
Sapphire Finishing 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. Sapphire Finishing is wholly owned by the Sapphire Group, directly through individuals (~8%) and group companies (~92%).

Overall control vests with a seven-member Board of Directors, dominated by the sponsoring family: five family members, including the CEO, and one non-executive. The CEO, Mr. Yousuf Abdullah, belonging to the sponsoring family, possesses expertise in textile 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.