PACRA Maintains the Entity Ratings of Diamond Fabrics Limited

Diamond Fabrics Limited ("DFL" or "the Company") is an emerging player within Pakistan's textile sector. Operating under the umbrella of the Sapphire Group, the Company continues to reinforce its competitive positioning through strategic backward integration, continuous balancing, modernization and replacement (BMR) initiatives, and sustained investments in state-of-the-art manufacturing infrastructure. Simultaneously, the adoption of cost-efficient energy solutions has strengthened operational resilience and enhanced production efficiencies. These strategic initiatives have translated into meaningful operational synergies, reflecting positively on the Company's business risk profile.

The Company has demonstrated a consistent growth trajectory over the years, with revenue increasing to PKR 40.2bln in 9MFY26 from PKR 50.1bln in FY25. This expansion was driven by capitalizing on growing demand through higher sales volumes, particularly within the apparel segment. Despite a challenging operating environment characterized by subdued global demand, persistent pricing pressures, and intense competition from regional textile exporters, the Company has continued to strengthen its market standing through disciplined execution of operational excellence initiatives and phased investments aimed at optimizing the cost structure. Investments in renewable energy projects, including solar and a planned biomass facility, are expected to warrant sustainability over the medium to long term. The planned biomass project, which is expected to be financed predominantly through conventional borrowings, is likely to further augment operating margins over the longer horizon. Furthermore, the Company's backward integration strategy through investments in dyed yarn and sewing thread manufacturing has reduced reliance on external and nominated suppliers, improving supply chain efficiencies. Additionally, the prudent deployment of surplus liquidity into strategic and capital market investments has supplemented the profitability matrix. The Company's operating margin remained narrowly above that of industry peers. However, elevated finance costs arising from higher borrowing levels, coupled with an increased taxation burden, kept the bottom line strained. This translated into a contraction in PAT at PKR 20mln during 9MFY26 (FY25: PKR 351mln).

The Company's financial risk profile remains adequate, supported by prudent financial management and a disciplined approach towards working capital optimization. Working capital requirements continue to be financed through a balanced mix of internally generated cash flows and short-term borrowings. Coverages remained moderate while the liquidity indicators have been maintained within comfortable thresholds. Going forward, the management remains committed to broadening the Company's business footprint, enhancing core operating profitability, and reinforcing long-term financial sustainability through continued investments in operational efficiencies and strategic capacity enhancements.
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The ratings are dependent on the Company's ability to sustain its operating margins while improving net profitability alongside the continued expansion of its business profile. Any deterioration in the financial risk profile will have a negative impact on the assigned ratings.

About the Entity
Diamond Fabrics Limited ("DFL" or "the Company") – a public, unlisted entity – commenced operations in 1988. It is a vertically integrated unit divested with all aspects of the textile value chain. The entire shareholding of DFL is held by the Sapphire Group through individual holdings and associate companies. Overall control vests with an eight-member Board of Directors, dominated by the sponsoring family. The CEO, Mr. Amer Abdullah, belonging to the sponsoring family, possesses more than 40 years of expertise in the textile sector and oversees the Company's affairs.