The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Assigns Initial Entity Ratings to Rainbow Hosiery (Pvt.) Limited

Rating Type Entity
(15-May-23 )
Action Initial
Long Term BBB-
Short Term A2
Outlook Stable
Rating Watch -

Rainbow Hosiery (Pvt.) Limited (‘RHPL’ or ‘the Company’) is a manufacturer and exporter of home textiles and garments. The Company utilizes modern technology to produce primarily high-quality fitted bedsheets of different specifications. Recently the Company has diversified its revenue stream and created a garment division, manufacturing jersey apparel i.e., hooded jackets, creepers, polo shirts, zippers, and jogging suits. The processes of the Company are vertically integrated to enhance production efficiencies and to implement better cost control. Over the period Rainbow Hosiery has gone through different phases of capacity expansions in dyeing, knitting, and CMT (cut, make, trim). RHPL’s major exports diverted to Europe followed by the USA. The Company has diversified its portfolio by adding newer customers to reduce its concentration risk as the revenue is coming from numerous customers as oppos to dependency on a single customer. There are committees in-place for different matters of the company including but not limited to Emergency Response Committees, Health & Safety Committee, Environment & Waste Management Committee, Work Council & Labor Committee, and Fire Drill & Fighting Committee, all the committees are headed by an independent committee member. The governance structure depicts room for improvement due to the absence of a formal board structure, board committees, and independent oversight, furthermore, external auditors are only QCR-rated. The Company is in transition to adopt a better financial and internal control system. The Company has valid certifications for its products and facilities and is periodically audited by internationally recognized certification bodies i.e. OEKO Tex, Sedex, SANFOR KNIT Certificate, and Made in Green. During FY22 revenues depicted ~41.7% growth mainly due to volumetric increase, whereas gross profit margins sustained around ~8.3%, though net margin improved to ~3.4% due to foreign exchange gain. Financial risk profile of the Company is comprised of low equity, however, cashflows are sufficient and the working capital cycle is adequate. The operations of the Company are managed through internally generated cash flows and there is no plan to obtain short-term and long-term borrowing facilities in the future. The Company has availed non-funded facilities from financial institutions.
The ratings are dependent on the firm’s ability to sustain its position amidst changing business environment and management’s ability to run the operations of the Company optimally. With the upcoming growth in the firm’s business & volumes; prudent financial discipline and implementation of a stringent control environment shall remain imperative.

About the Entity
Rainbow Hosiery (Pvt.) Limited, incorporated in 1989, is a private limited concern principally engaged in the manufacturing and exports of home textiles and garments. The Company's registered office and manufacturing unit is situated at sector-16b Malik Anwar Goth, Karachi. The board comprises two members of the Lodhia Family. Mr. Mohammad Shahid Lodhia manages the overall business affairs of ‘RHPL’ as the CEO while Mr. Mohammad Lodhia (son of Mr. Shahid Lodhia) is the managing director of the Company and possesses ample business experience. Mr. Syed Shamim Raza Zaidi is associated with the firm since its inception & holds an industrial experience of more than three decades. He is assisted by a qualified 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.