PACRA Maintains Entity Ratings of Denim-E (Pvt.) Limited

The ratings of Denim-E (Pvt.) Limited incorporates progressive growth of the Company in the initial years. The Company is a family-owned business. Apart from this company, the sponsor family is involved in real estate and Biogas businesses. Denim-E is principally engaged in the manufacturing and export of garments/made-up, clothing, knitwear, and the weaving of apparel. The Company’s management is cognizant of the textile industry’s volatility and has planned phase-wise up gradation of machinery to remain competitive. Healthy topline growth has been recorded over the last few years which improved to PKR 3.5bln in FY23 (FY22: PKR 2.4bln); a result of increased capacity levels and the positive impact of exchange rate gains from dollar-denominated earnings. The sales mix represents the contribution from the export market. The Company’s customer base is spread across several export destinations including Central Europe. Assigned ratings incorporate elevated business risk in the textile sector, stemming from a weak macroeconomic environment, high interest rates, inflationary pressures, escalating raw material costs, ongoing energy crisis, and a global demand slump. Despite the industry's historical significance, these factors pose challenges to margin sustainability and future growth. The Company's liquidity profile continues to provide adequate support to assigned ratings. Going forward, the planned CAPEX is expected to bring efficiency to the business process and improve margins.
During FY23, textile exports were valued at $16.5 billion as against $19.33 billion, reflecting a 15% year-on-year decline – a downward trend seen since the beginning of FY23. Exports declined due to higher energy prices, cotton shortages, and uncertainty in foreign exchange rates. Taming the demand represented by export routes was also a challenge. During FY23, value-added products such as knitwear, bedwear, towels, and ready-made garments saw an annual decline of 13 percent. Basic textiles, including raw cotton, cotton yarn, and cotton fabrics, declined by 21 percent year-on-year. During the month of June 2023, cotton yarn exports increased by 7% MoM. Value-added exports reported volume growth of 16 percent on a month-on-month basis.
The ratings are dependent on the management’s ability to uphold the entity’s growing performance trend. Meanwhile, maintaining strong margins and coverages to fulfill financial obligations will remain critical. The company is expected to adhere to conservative financial discipline, which would be crucial to ratings.

About the Entity
Denim-E (Private) Limited was incorporated on August 13, 2018, as a private limited company. The ownership of the Company rests with the family of Mr. Khalid including his son, and brother. The major shareholding is owned by Mr. Azhar Khalid (67%). The Company has a three-member board with the presence of sponsors and their families. The position of CEO is with Mr. Azhar. While the Chairman is Mr. Khalid Farooq. Sponsoring family dominance and the absence of independent oversight indicates room for improvement in the governance framework of the Company.