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PACRA Maintains Entity Ratings of Sapphire Fibres Limited

Lahore, November 24, 2022 (PPI-OT):The ratings reflect Sapphire Fibres Limited’s (Sapphire Fibres) established business profile emanating from a strong presence in the broader value chain; enabling the Company to manage volatility in the textile industry. On one side from producing a range of finer quality yarn, the Company is also engaged in dyeing, knitting, stitching, and manufacturing denim fabric. The business profile, mainly emanating from enhanced contribution from the spinning segment, has recorded a sizable increase. However, the volumetric analysis reflects a largely sustained pattern where the major benefit taken is from high yarn prices as well as rupee devaluation during the year.

During FY22, the contribution of exports to the topline improved YoY (FY22: PKR 38.2bln, FY21: PKR 22.2bln). Selling and marketing expenses increased YoY where as other income inched up (FY22: PKR 1.4bln, FY20: PKR 1.2bln). The net profitability of the company improved to a historically high PKR 6.2bln (FY21: PKR 2.2bln). The financial risk matrix reflected largely the same trend. Free cash flows from operations remained in a comfortable range due to the good performance of core operations. The company witnessed a slight decline in coverages and margins in 1QFY23. A sizable investment book built over the years by deploying surplus funds supports the Company’s liquidity profile.

Ratings incorporate the association of the company with the well-established Sapphire Group which enjoys a distinguishing presence in several sectors. During FY22, Pakistan’s textile exports surged to $19.3bln (recording a growth of 26%). Exports grew owing to increased volumetric growth of (16% YoY) in the value-added segment, a steep rise in global demand. Under the value-added category, the knitwear segment remained the top performer by posting 34% YoY growth in exports to $5.1bln in FY22 due to a sharp rise in global demand, especially in the US and European countries.

From July to August 2022, the cumulative exports of knitwear increased by 15.4% to $1.32bln; cotton cloth by 4.2% to $580.5mln, and readymade garments by 5.9% to $911.5mln over their exports in the same period of last year. However, bed wear exports were down 2.9% to $780mln, towels by 1.7% to $237.3mln, and cotton yarn sales declined by 18%. A slowdown is expected in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries.

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 are important. The sustainability of coverages would remain critical to avoid any drag on the financial profile.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com

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