PACRA Maintains Entity Ratings of Siddiqsons Limited

Siddiqsons Limited (Siddiqsons or 'the Company') is the flagship company of the Siddiqsons group and is considered a pioneer of the denim industry in Pakistan. Siddiqsons mainly derives its revenue from the manufacturing and sale of denim in addition to having a portfolio of strategic investments. During 9MFY23, revenues of the company achieved a growth of 12.4% YoY on the back enhanced volumes also inclusive of the decline of rupee against dollars. Over the last few years, the business profile has strengthened manifold. The sales mix remained dominated by healthy exports. Similarly, margins recorded a favorable increase. The denim industry enjoys relatively better margins that are reflected in the Company's profitability. Meanwhile, the diverse investment portfolio generates steady investment income, mainly in the form of dividends and rental income, supporting the Company's bottom line. The Company is diversifying its product slate to enhance outreach to export avenues. The financial matrix reveals efficient leveraging, strengthened coverage, and adequate working capital cycle. The ratings incorporate the financial strength and the proven track record of the sponsoring family. During 7MFY23, the textile exports were valued at $10.08bln compared to $10.93bln, reflecting an 8% decline YoY – the declining trend has been recorded in the last few months. The decline in exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand for yarn in international markets is also a challenge. The analysis of 5MFY23 reveals that among value-added items, bedwear has witnessed the largest decline of 19% (on an MoM basis), down to $217 million. Knitwear remained on the downward path in October 2022 and declined by 10% to $392 million. Among non-value-added items, cotton yarn has shown the largest decline of 35%. Moreover, a slowdown is prevailing in textile demand amid burgeoning inflationary pressures in the exporting destinations, especially in the US and European countries. The demand pattern is expected to improve post-Jun-23.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. The management is cognizant of these challenges and is working on this front. Meanwhile, prudent working capital management and generating sustainable cash flows from core operations are important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings.

About the Entity
Siddiqsons Limited was incorporated as a public unlisted company in 1987. The Company is engaged in the production and sale of denim yarn, fabric and garments. Siddiqsons is a vertically integrated composite textile unit with production facilities located at Hub and Karachi. The Company has 26,832 spindles and 265 looms. The weaving unit has a capacity of producing ~31 million meters of denim every year. The company is self-sufficient in energy through captive power generation. The majority stake in the Company is owned by the Tariq family. Yousuf Adil, the Chartered Accountants, are the auditors of the company. The auditors have qualified the audit report based on treatment of the investment property in the financial statements for the period ended 31 Dec 2020. Overall control of the Company vests in the 4 member Board of Directors. There are no independent or non-executive directors on the board. Mr. Tariq Rafi is the Chairman and CEO of Siddiqsons and is a recipient of the coveted Civil Award Sitara-e-Imtiaz. He has extensive experience in textile, banking and real-estate sectors. Mr. Abdul Rahim, son of Tariq Rafi, is the current COO of the Company and is assisted by an able and experienced management team.