PACRA Assigns Initial Entity Ratings To Service Global Footwear Limited

Service Global Footwear Limited (‘SGFL’ or ‘the Company’) is a public limited company specialized in the manufacturing and marketing of footwear products. It is a prominent export-oriented footwear entity based in Pakistan. The Company is a subsidiary of Service Industries Limited (‘SIL’) – an acclaimed group with 50+ years of experience in tyres & tubes/spare parts for automobiles under eminent brand name ‘Servis’, followed by footwear exposure in local and export markets and technical rubber products. The ratings draw direct comfort from longstanding presence of group in given industry environment underpinned by SGFL’s evolving position as a trusted footwear atelier for its expanding network of global partners. Pakistan’s footwear making industry has made reasonable progress in the last decade. Yet, the sector is majorly comprised of unorganized players (~80%) where craft manufacturers/cobblers possess considerable stake and local retail shops are dependent on the informal supply. Footwear exports represent less than one percent of the Pakistan’s total exports. Percentage of export increase in terms of US Dollar over last year is 13.74% as export for FY23 recorded at $178.5mln (FY22: $156.9mln). The exports mainly encompass of leather footwear and are highly concentrated to Europe (Germany, Italy, Netherlands, Spain, & France), UK, & USA. Almost 20% sector comprises organized players where renowned shoe manufacturers in the country fall under this segment including Servis. Accordingly, SGFL holds ~35% of market share, primarily channeling footwear, leather & allied items to various international brands. It has intensified its outreach to Europe (forms ~70% of its current exports), and also working to spread its clientele base in the USA and other countries. In 9MCY23, SGFL witnessed a topline growth of ~35.4% on annualized basis with ~98% derived from export sales. Its profitability matrix at all levels has improved over the years as procurement of materials is mainly done locally, thus offering ample sales margin. Financial risk profile is demonstrated by adequate working capital management, better cash cycle, & modest coverages. Capital structure is considered leveraged, nonetheless major portion of debt is covered via short-term borrowings under export refinance schemes / export finance facilities. Assigned rating also incorporates strong sponsor support augmented by sound governance practices and methodical internal control system. Going forward, SGFL intends to add value by delivering finest quality of footwear through continuous advancements in its processes, achieving sustained supply chain, ensuring culture inclusivity with more designs, and adopting innovative technology. The ratings incorporate profitability matrix and growth prospects of SGFL in line with financial projections coupled with expansion plans.
The ratings are dependent on sustenance of Company’s leading share in its respective niche and consistent growth amid changing environment. Prudent financial performance and effective liquidity profile shall remain imperative.

About the Entity
SGFL, incorporated as a Public Limited Company on July 19th, 2019 when the board of SIL decided to demerge and transfer one of its manufacturing units (Muridke), along with its facility and all relevant assets, operations, & liabilities etc. to a subsidiary SGFL. On April 28th, 2021, the Company got PSX listing. The principal activities are manufacturing, sale, marketing, import & export of footwear, leather & allied products. Major stake (~79.7%) rests with Service Industries Limited, followed by general public (~19.2%), & individual investors (~1.1%). SGFL's board comprises nine members including Mr. Arif Saeed (Chairman) & Mr. Hassan Javed (CEO).