The Pakistan Credit Rating Agency Limited
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Uswa Sikandar

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PACRA Maintains Entity Ratings of Sapphire Finishing Mills Limited

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

The ratings of Sapphire Finishing Mills Limited (“Sapphire Finishing or the company”) reflect its strong business profile emanating from an international presence in the broader value chain of late; enabling it to manage volatility in the textile industry. Sapphire Finishing is engaged in processing, dyeing, and finishing of the fabric, stitching of garments, and generation of power for self-consumption. The company has a well-equipped and experienced management team to spearhead the main departments. The company’s revenue, being fundamentally export-based exhibited a noticeable growth during the preceding years. Sapphire Finishing has penetrated the international market through its wholly-owned marketing and trading companies, Sapphire Finishing Mills USA, Daletec AS, and Sapphire Europe BV. The company’s foothold in the export market is increasing as depicted by an increase of 64% in Garment exports during FY23 through an established customer base. Locally, the company sells to several big players in the textile industry. The quantum of revenue base is large depicting a healthy growth of 24% (FY23: PKR 42.3bln; FY22: PKR 34.2bln) while the company’s bottom line was recorded as historically high (FY23: PKR 3.9bln; FY22: PKR 2.4bln). The company secured good margins as compared to the peer universe since it operates in value-added segments, Workwear and Fashionwear, and has an in-house multifuel power generation boiler with a capacity of 5.5MW. The investment portfolio is meticulously worked out. Dividend income from Tricon Boston Consulting (Private). Limited registered a healthy growth during the last few years. The deployment of surplus funds in the Capital market supports the company’s liquidity profile. A sizeable increase in cashflows exhibit that the company is generating sufficient cash to meet the debt obligations. The management adopted a conservative approach attributable to the high policy rate as evidenced by the intact borrowings. The company portrays a robust financial risk profile supported by good working capital management and coverages. Going forward, the company is planning to work on its compliance and sustainability profile in the ambit of the ESG framework. Ratings took comfort from the company’s association 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. During FY23, value-added products such as knitwear, bedwear, towels, and ready-made garments witnessed a decline of 13% 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 Finishing Mills Limited – a public, unlisted entity – commenced operations in 2003 and manufactures Value-added textile products. 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 textiles and oversees the Company affairs. He is supported by a team of highly qualified and seasoned 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.