PACRA Assigns Initial Entity Ratings to Sapphire Dairies (Pvt.) Limited.

The assigned ratings for Sapphire Dairies (Pvt.) Limited (“the Company” or “SDPL”) 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, Cement, Real Estate and Dairy. Sapphire Dairies is a strategic venture of the group, driven by the vision that corporate farms can enhance dairy economics and hygiene standards for the people of Pakistan and its investors. SDPL engages in the rearing and farming of dairy animals and has transformed into a fully vertically integrated dairy unit. The company operates a state-of-the-art corporate dairy farm, equipped with a fully automated milk collection mechanism and real-time production status updates. The processing and packaging facility of processed Milk, Dairy and Fruit beverages meets the high-end international quality standards. The board of SDPL is more of an advisory nature accompanied by professional management. In terms of revenue contribution, SDPL's primary product is raw milk, followed by other dairy and fruit beverages, as well as related products. During 9MFY24, the Company reported a topline of PKR 3,197.79mln (9MFY23: PKR 2,430.76mln, FY23: PKR 3,400.93mln), mainly attributed to the inflationary impact on milk pricing. The generation of non-core income from revaluation gain on the dairy livestock has supplemented the profitability matrix of the Company as it operates in a fundamentally low-margin-based industry. The company devised a business strategy to channel its revenue streams into the export segment, and SDPL recently exported a batch of fruit beverages. Contemporary genetics improvement practices in dairy breeds, as adopted by the company, has enabled it to enhance milk yield of its cattle base. The financial risk profile of the company is considered adequate, with an aptly managed working capital cycle due to the perishable nature of the product. The cashflows and coverages of the Company are considered adequate. The Company maintained a moderately leveraged capital structure with short-term borrowing to fuel working capital requirements mainly dedicated to the procurement of feed. The high sensitivity in raw milk pricing, ensuring availability of feed, prudent management of livestock and treasury operations coupled with a change in the regulatory framework are the prime challenges specific to the industry.
The ratings are dependent on sustainable growth in the profits while expanding the business volumes. The maintenance of coverages and cashflows at an optimal level plays a pivotal role in ratings. The realization of synergies after venturing into the export segment remains critical.

About the Entity
The Company was incorporated on January 31, 2008 as a private limited company. The principal activity of the Company is to run dairy farm for the production and processing of milk and dairy products. It is a subsidiary of Diamond Fabrics Limited, which owns a majority stake (~53.755%) in the company. The rest of the shareholding also lies within the Group. The governance structure includes five members, all representing the sponsoring group.