PACRA Maintains the Entity Ratings of Sapphire Fibres Limited

The assigned ratings of Sapphire Fibres Limited (“SFL” or “the Company”) reflect the prominent profile of its sponsoring group, the Sapphire Group, a renowned textile conglomerate in Pakistan. The group has appreciable business diversity in multiple industry segments including; power generation, dairy, and retail. SFL is considered one of the group's leading ventures in the competitive textile landscape. The Company operates as a vertically integrated unit, utilizing advanced production technologies to deliver high-quality products across its spinning, denim fabrics, knitted fabrics, and garment divisions. Over time, SFL has diversified its income streams beyond the textile business to manage concentration risk, entering the power sector through core strategic investments and building an equity investment portfolio. As part of SFL's business diversification strategy, the Company is in the process of acquiring a 50% share in UCH Power (Private) Limited and UCH–II Power (Private) Limited. A substantial portion of the Company’s revenue comes from the export market, contributing approximately 81% of the total turnover, amounting to PKR 38.5bln. During FY24, the Company experienced a slight increase in revenue growth, reaching PKR 47.4bln (FY23: PKR 46.4bln), mainly attributable to a modest improvement in product pricing. Spinning is the top-performing segment in revenue generation, contributing PKR 28.6bln to the Company’s top line, followed by PKR 12.3bln from Denim and PKR 6.4bln from Knits. The knitting segment encountered a substantial downturn during the year, primarily due to subdued product demand in international markets resulting from recessionary trends. However, the segment is showing signs of recovery with a recent increase in order volumes, and management anticipates improved performance in the coming quarters. SFL’s clientele consists of established entities across various export destinations worldwide, primarily in Asia and European markets. During FY24, the dilution of gross margins was primarily attributable to the strategic procurement of imported raw cotton to elevate product quality and optimize the supply chain matrix. Concurrently, escalating energy costs, driven by increased electricity and gas tariffs, and elevated labour expenses, necessitated by inflationary pressures, coupled with the surge in finance costs are the prime challenges specific to the textile industry. The funding matrix of the Company revolves around short-term equity investments, which supplement the liquidity profile and augment the profitability matrix of the Company through the inflow of dividend income. The Company maintains a low-leverage capital structure. The Company's well-managed working capital supplements the financial risk profile. The cashflows and coverages of the Company are considered adequate owing to magnified finance costs.
The ratings depend on an improvement in profitability while venturing into diversified business segments. The prudent management of the investment portfolio remains important. The sustainability of coverages and stable generation of cashflows from core consolidated operations remain critical for assigned ratings.

About the Entity
Sapphire Fibres Limited, listed on the PSX, is one of Sapphire Group's flagship companies, with an operational capacity of 104,256 spindles and 164 looms. The group collectively owns a majority stake in the Company, held directly by group Companies (~54%) and individuals (~14%). The remaining (~32%) stake is distributed among institutions, modaraba mutual funds, and the general public. The Company has a nine-member board, primarily composed of members from the sponsoring family, with three independent directors. The board is chaired by Mr. Yousuf Abdullah, while the CEO, Mr. Shahid Abdullah, oversees the Company's affairs.