PACRA Maintains the Entity Ratings of Reliance Cotton Spinning Mills Limited

Pakistan's spinning industry is highly fragmented and consists of ~368 dedicated spinning units with an estimated size of ~PKR 775bln and ~13.4mln number of spindles installed as of FY23 according to an economic survey of Pakistan. The projected cotton production estimate is revised and projected to be ~11.5mln bales and currently, the production has reached upto ~8.26mln bales, surpassing FY23 total production of ~4.91mln bales. During FY24, better local raw cotton yield is expected to supplement the industry for import substitution. Pakistan's requirement for imported cotton has increased from ~3.5mln bales to ~4mln bales for the ongoing year. The recent hike in energy tariffs further elevated the challenges for the industry. Overall, the industry's cashflow, thus liquidity remains stretched. Consequently, the industry's overall outlook is on the Watch.
The assigned ratings of Reliance Cotton Spinning Mills Limited ('Reliance Cotton" or 'the Company') reflects strong backing of Sapphire Group. The Company holds an adequate position in the peer universe, on standalone basis. Reliance Cotton is known for its superior quality and wide range of yarn products both, nationally and internationally. The product mix includes 6 Ne to 80 Ne (single & double yarn), plied, slubs, mélanges, and blends. The Company has installed capacity of high quality ~57,600 spindles. By producing premium quality products, the Company mainly generates revenue from exports (~83%) and locally (~17%). Reliance Cotton enjoys an established customer base with several export destinations in Italy, Portugal, Argentine, and Bangladesh along with a renowned local customer base. Despite of the current economic trends, the topline, margins and in turn profits posts stability; however, remains lean. Going forward, the current economic conditions pose challenges to sustain the Company's business risk profile. The financial risk profile of the Company remains adequate supported by manageable leveraging with dependence on financing facilities. Capital structure remains considerably strong.
Ratings incorporate the association with the renowned Sapphire Group which enjoys a distinguishing presence in various sectors. The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape, operate at an optimal level and sustain margins. Sustained capacity utilization and strengthening the business risk profile framework remain crucial for ratings.

About the Entity
Reliance Cotton Spinning Mills Limited ('Reliance Cotton" or 'the Company') was incorporated as a listed company in 1991 under the umbrella of Sapphire Fibers Limited & Mills. The Company started its operations in Jul-92 and is exclusively engaged in spinning business. The core operations includes manufacturing and export of a wide ranged premium quality yarn products. Major stake of ~66% is held by the Sponsors - the Sapphire Group through associated companies. Directors hold (~8%) stake, Financial Institutes and Joint stock Companies hold (~5%) stake of the Company. While, the remaining stake of (~21%) is held by General Public. The Board is chaired by Mr. Shahid Abdullah, while, Mr. Shayan Abdullah serves as the Chief Executive Officer (CEO). He is assisted by a team of professionals.