The Pakistan Credit Rating Agency Limited
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Uswa Sikandar

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PACRA Maintains Entity Ratings of Sapphire Fibres Limited

Rating Type Entity
(13-Nov-23 )
(23-Nov-22 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect the recognizable business profile of Sapphire Fibres Limited (the Company) established from its presence in the broader value chain; enabling it to manage volatility in the textile industry. The Company enjoys a competitive edge in its respective market by the presence of a value-addition segment. The Company’s core product range is segregated into three segments; Spinning, Knitting, and Denim. The Company’s overall spinning capacity was enhanced to 104,496 spindles in FY23. The business profile, mainly emanating from a sizable contribution of the Spinning segment posted a noticeable growth over the years. However, the volumetric analysis signifies a largely sustained pattern whereas the benefit is largely derived from Rupee devaluation in FY23. The sheer quantum of the revenue base is large whilst the management captures attractive margins from the value-addition segment. A major chunk of the exports comprise the sale of Yarn followed by Fabric and Garments. The Company achieved geographical diversification through an established customer base and product differentiation during the last few years. Locally, the Company sells to several big players in the textile industry. As per management accounts, the Company’s topline was recorded at PKR 12.2bln during 1QFY24 (FY23: PKR 46.4bln) while it achieved a net profitability of PKR 716mln in 1QFY24 (FY23: PKR 5.1bln). During FY23, the margins remained in a comfortable range despite the challenges witnessed in the import of raw materials. On the strategic side, the investments are meticulously worked out and rigorously followed which adds to the financial strength. The adequate coverages exhibit sufficient cash flows to meet the outstanding debt obligations. The Company portrays a robust financial risk profile as evidenced by less leveraging and an improved Capital structure. Management of the working capital cycle remains essential, going forward. Ratings incorporate the association of the company with the well-established Sapphire Group which enjoys a distinguishing presence in several sectors. During FY23, textile exports were valued at $16.5 billion compared to $19.33 billion, reflecting a dip of 15% YoY – the declining trend has been witnessed by the start of FY23. The exports tumbled attributable to high energy costs, shortage of cotton, and uncertainty in the Foreign Exchange Rate. The suppressed demand pattern exhibited by export avenues was also a challenge. During FY23, value-added products such as knitwear, bedwear, towels, and ready-made garments witnessed a decline of 13% YoY. The basic textiles including raw cotton, cotton yarn, and cotton cloth posted a drop of 21% YoY.
The ratings are dependent on sustaining the business profile of the Company by maintaining profitability and margins achieved from core textile operations. At the same time, the sustainability of non-core income and prudent management of surplus funds is important. The sustainability of coverages would remain critical to avoid any drag on the financial profile.

About the Entity
Sapphire Fibres Limited - listed on the Pakistan Stock Exchange - commenced operations in 1979. Sapphire Fibres is a vertically integrated composite textile unit, manufacturing specialized Yarn, Fabric, and Garments. It is the flagship company of Sapphire Group, which collectively owns a majority stake in the Company; directly through Individuals (~14%) and Group companies (~54%). The remaining (~32%) stake is well spread among institutions, modaraba and mutual funds, and the general public. Overall control vests with a nine-member BoD, dominated by the Sponsoring family while three members are independent directors. The Board is chaired by Mr. Yousuf Abdullah. The CEO, Mr. Shahid Abdullah oversees the company affairs. He is supported by a team of highly qualified and experienced professionals.

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.