PACRA Assigns Initial Entity Ratings to Khaadi Pakistan Limited (formerly: Khaadi Pakistan SMC Pvt. Limited)

The assigned ratings of Khaadi Pakistan Limited ("Khaadi" or "the Company") reflect its position as one of Pakistan's leading fashion retail brands, supported by the strength and acumen of its sponsors. The Company is a wholly owned subsidiary of Weaves Corporation Limited, which is 80% held by Weaves Holding Limited and 20% by International Finance Corporation (a member of the World Bank Group). The primary business of Khaadi is design, marketing, distribution and retail of textile products and related accessories, sold through a network of 31 nationwide physical outlets, 11 international stores and 3 fulfillment centers spread across UK, US and UAE markets and an e-commerce channel. Khaadi differentiates itself through weekly launches (twice weekly in festive seasons) and a strategic shift from going-wide to a going-deep strategy through larger experience-oriented stores as big as 45,000 sq.ft. The Company is progressing with its Experience Store strategy, with 18 of its 31 domestic outlets converted into the new format. The planned expansion is supported through internal funds and proceeds from a planned IPO. Under the pre-IPO mechanism, 250mln shares have already been placed, while a further 250mln shares will be offered through the IPO. The resulting equity injection is expected to further strengthen the Company’s capital. Arif Habib Limited is Consultant. As part of the listing process, Khaadi has converted from a Single Member Company to a Public Company and is undertaking the requisite regulatory and corporate governance compliances, including alignment with the Code of Corporate Governance framework. As part of OPEX minimization strategy, sustainability efforts include a zero-carbon, self-sustaining green store in Mardan. Additionally, the Company’s "Kreate Your Mark" initiative has served several women-empowered small-scale businesses by providing infrastructure to sell their products within Khaadi's experience stores. During 6MCY26, the Company recorded net sales of PKR 17,080mln, reflecting period-adjusted growth of 35.9%, with exports contributing 10.61% of gross sales. Margins are on an improving trend at the gross, operating and net levels, supported by the brand's positioning and improving operating efficiency, although reported CY25 profitability included non-cash fair value gains and asset write-offs that broadly offset each other. To strengthen the brand ownership structure and investor confidence ahead of the planned capital-market transaction, Khaadi Pakistan acquired the “Khaadi” brand usage rights from its parent, for PKR 8,000mln, payable on demand with a grace period of 12months. The arrangement is such that it is not expected to create any financial burden on the Company. Additionally, the Company strategically shifted its debt mix toward long-term borrowing to finance its capital expenditures. However, this strategy resulted in a higher current maturity of long-term debt, leading to a moderation in debt service coverage to 1.4x (CY25: 3.8x). Despite the decline, coverage remains adequate, supported by improved earnings and the Company's strengthened operating performance. The working capital cycle remains efficient, supported by supplier credit, though liquidity is thin amid sustained capex and dividend payouts. The capital structure is geared, with the equity base supported by retained earnings but moderated by distributions to the parent.
Going forward, the ratings remain contingent upon the Company's ability to sustain growth and margins from its upgraded store experience while reducing leverage and strengthening liquidity through the planned IPO. Improved coverage, prudent dividend and preservation of the brand's competitive position will remain central to the rating trajectory.

About the Entity
Khaadi Pakistan Limited (“Khaadi” or “the Company”) was incorporated in Pakistan in 2015. The Company benefits from an established governance framework, comprising three executive members including the CEO and four independent members, including the chairperson with professional affiliations with reputable organizations. Mr. Shamoon Sultan, who brings more than 25 years of industry experience, serves as the Chief Executive Officer and is supported by an experienced management team.