PACRA Updates Entity Ratings of Sefam (Pvt.) Limited

The assigned ratings reflect the evolving profile of Sefam (Pvt.) Limited (“the Company” or “SPL”). The Company has undergone an ownership transition after the execution of the de-merger scheme on 1st April 2023. After the de-merger transaction, SPL was operating with two brands Kayseria and Leisure Club (LC) whereas Shahnameh was incubation of LC, however, going forward it will be established as a separate brand and the remaining 08 brands are carved out and divested into East Gate Industries (Pvt.) Limited. The management of the SPL is mindful to cater the impact of de-merger by achieving sustainable growth in the top line while maintaining the profitability matrix at an optimal level by addressing inefficiencies. The SPL currently owns 149 shops spread across the multiple regions of the Country in the textile retail industry of Pakistan. The rating takes comfort from the presence of Sarena Textile Industries (Pvt) as a sponsoring group Company-a vertically integrated unit. In FY23, the de-merger transaction impacted the Company in two ways, (i) the separation of certain assets and liabilities and vesting them into East Gate Industries (Pvt) Limited & (ii) the reduction in the issued and paid-up share capital and unappropriated profits. During 6MFY24, after the spinoff of brands, the topline of the Company stood at PKR 2.9bln (FY23: PKR 23.9bln). The margins of the Company are muted due to low business volume. The financial risk profile of the Company is considered moderate as SPL gradually unloaded debt and un-leveraged their statement of financial position which can also be reflected by the leverage ratio of 23.1% during 6MFY24 (FY23: 86.0%). Moving forward as per the SPL management presentation, further unloading of debt is expected to create a buffer in their bottom line by managing inflated finance cost impact. The cashflows and coverages of the Company are considered adequate and need improvement. The Company optimally managed their working capital requirements mainly supplemented through internally generated cashflows and short-term borrowings. The rating watch assigns reflects the recent transition of the de-merger. The Company performance will be analyzed in the upcoming quarters and, appropriate rating action will be taken in due course of time. The size of the textile industry in Pakistan is estimated to be PKR 2.62Trn (LSM)~3.0% of the total GDP as of FY23. The composite & garment segment in the textile sector contributes ~ PKR 1.6Trn mainly dominated by knitwear, readymade garments, bedwear and towels followed by PKR 775bln from spinning and PKR 637bln from weaving. The escalation in energy tariffs & finance costs, PKR devaluation, and ensuring the availability of optimum quality raw materials are prime challenges specific to the industry.
The ratings are dependent on the Company’s ability to sustain its brand position after the de-merger. The execution of corporate governance best practices is the essence of the overall governance that needs improvement. The sustainable growth in the top line while maintaining the profitability matrix at an optimal level is vital for assigned ratings. Adherence to the debt matrix at an adequate level is a perquisite for assigned rating.

About the Entity
SPL, incorporated in 1989, is part of the Sarena Group. Post demerger, Ms. Seema ownership divested and ownership transition takes place. Now, Mr. Hamid’s holds 83.18% stake, while Mr. Tariq and Ms. Ambreen each hold 8.41%. The board, dominated by family members, includes Mr. Hamid and Mr. Tariq as directors. The company operates 149 sales points under two brands, Kayseria and Leisure Club.