The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Assigns Initial Entity Ratings to Reliance Cotton Spinning Mills Limited

Rating Type Entity
(14-Apr-22 )
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch -

The assigned ratings of Reliance Cotton reflect association of the Company with Sapphire Group and good standalone positioning in the peer universe. The current installed capacity is 46,944 spindles with a plan in place to enhance this capacity. The Company manufactures wide variety of premium quality yarn from 6 Ne to 80 Ne (single & double), plied, slubs, mélanges and blends. Board has seven members, five from sponsoring family and two independent directors. The Company’s management involves experienced professionals overseeing operations of the Company, aided by comprehensive reporting. The Company enjoys established customer base with several export destinations in Italy, Portugal, Argentine and Bangladesh along-with renowned local customer base. Sales mix, dominated by direct and indirect exports, display improvement over the years. During FY21, the Company’s revenues stood at PKR 7.7bln (FY20: PKR 6.0bln). Operating profits and net profitability recorded sizable improvement in the recent year whilst margins remained good. The financial risk matrix reveals moderate leveraging and improvement in coverages and working capital management compared to last year. During the period July-December FY21-22, textile exports of Pakistan surged 26 percent YoY, fielding $9.39 billion in total export remittances, as compared to $7.44 billion in the same period last year. This is attributable to increase in demand for textile products internationally and channeling of export orders towards Pakistani market. On a YoY basis, the exports of value-added textile items increased in both quantity and value in December 2021. Going forward, the textile sector’s outlook is expected to stay positive in the medium term where the demand for textile products is expected to sustain. In the local market, the textile sector has recorded strong performance. The relief measures introduced by the State Bank of Pakistan such as deferment of loan payments for one year, low-interest rates, and salary refinance scheme also provided comfort to the sector. Many players have also availed the TERF scheme announced by the Central Bank. This will lead to overall leverage of the sector to increase; however, on relaxed financing rates. The sustainability of demand pattern for the current higher orders from Europe and USA remains essential for the feasible utilization of added capacity by textile players.
Ratings incorporate association of the company with renowned Sapphire Group which enjoys distinguishing presence in various sectors. The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape, operate at optimal level and sustain margins, going forward.

About the Entity
Reliance Cotton is a listed company, incorporated in 1990 under the umbrella of Sapphire Fibers Limited. The Company is exclusively involved in spinning. It manufactures and exports wide range of premium quality yarn products.
Associated Sapphire Group companies own ~65% shareholding of the Company. Sponsors directly own ~16% of the shareholding whereas various Modarabas and Mutual Funds own ~13%. The CEO, Mr. Shayan Abdullah, belonging to the sponsoring family, is a foreign graduate and possesses expertise in textile and has future-oriented goals for the Company. 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.