("Diamond Fabrics Limited" or "DFL") was incorporated as a private limited Company in Pakistan on February 10, 1988, and later converted into a public limited Company on October 8, 1988.

DFL is a prominent business venture of the Sapphire Group, operating as a vertically integrated unit. In recent years, the Company has undergone strategic expansion, with the production capacity of the Apparel Division continuing to grow steadily. Lately, the Company has further diversified its product portfolio by venturing into dyed yarn and sewing thread production.

The Company is actively engaged in the manufacturing and sale of yarn, fabric, and ready-made garments. Its product portfolio includes 100% cotton, polycotton, greige, bleached, dyed, and printed fabrics, offered in a variety of widths and constructions to cater to diverse market needs. The Company's robust manufacturing infrastructure comprises 24,480 spindles and 346 looms, enabling high-volume production. Its denim unit has a production capacity of 30 million meters of fabric annually, while the apparel unit can produce up to 11.3 million garments per year. Strategically located across key industrial hubs in Pakistan, the Company operates its registered office in Karachi, its corporate head office in Lahore, and its main production plant in Sheikhupura.

DFL's entire stake is owned by the Sapphire Group, holding approximately 68.97% of its shares through group companies: Sapphire Holdings (Pvt.) Limited (~38.28%) & SFL Limited (~30.69%). Members of the Abdullah family directly own the remaining ~31.03% stake.

Since its inception, the Company's ownership structure has remained unchanged, a trend expected to continue in the foreseeable future, supported by its affiliation with the Sapphire Group. The Company continues to benefit from the leadership and guidance of the successors of Mr. Mian Mohammad Abdullah and his four sons, Mr. Shahid Abdullah, Mr. Nadeem Abdullah, Mr. Amer Abdullah, and Mr. Yousaf Abdullah, who are actively engaged in the management and strategic direction of the Group’s diversified business. The involvement of the third generation in the business further indicates the continuity of family ownership and management.

Since its inception in 1970, the Sapphire Group has gone through multiple economic cycles but the growth remained intact. With more than five decades of extensive experience in the textile, energy, retail, and dairy industries, the sponsors possess exceptional business acumen and strategic insight. Their diverse expertise underscores their capability to drive growth and innovation within the organization.

The financial strength of DFL emerges from its association with Sapphire Group, which boasts an annual revenue of ~1.35bln USD during FY24. Among this, ~1.15bln USD is generated from the textile division, indicative of the sponsor's ample capacity to support the Company, if needed.

The Company has an eight-member board including the CEO, Mr. Amer Abdullah. The board also included the group CFO of Sapphire Group, Mr. Abdul Sattar. All other members are representative of the sponsoring family. The inclusion of an independent director on the board will strengthen the governance framework of the Company.

Mr. Mian Mohammad Abdullah, the Chairman of Sapphire Group possesses an extensive experience of over 50 years in the local industry. He has been bestowed with Pakistan's top civilian award, the Sitara-e-lmtiaz twice. Mr. Shahid Abdullah, the CEO of Sapphire Fibres Limited and Sapphire Electric Company Limited, holds a bachelor's degree in commerce from the University of Karachi. Mr. Nadeem Abdullah earned his degree from McGill University in Canada and serves as the CEO of Sapphire Textile Mills Limited.

In line with best corporate governance practices, the establishment of formal board committees will enhance the board's effectiveness. Board meetings are held regularly to review financial performance and assess progress toward strategic objectives. During FY24, attendance of the BOD members remained strong in meetings, reflecting their dedication and commitment. While draft meeting minutes have been documented, there is room for improvement.

To align with high standards of transparency, the Company has appointed M/s. ShineWing Hameed Chaudhri & Co. as its external auditors. The firm is classified in Category 'B' by the State Bank of Pakistan's panel of auditors.  The auditors expressed an unqualified opinion on the Company's financial statements for the period ended June 2024.

The Company has maintained a well-structured organizational framework to ensure the smooth flow of operations. To address the diverse operational requirements, the core functions have been segregated into four divisions, namely 1) Spinning Division, 2) Weaving Division, 3) Denim Division, 4) Apparel Division. Each division is headed by a Managing Director and a Co-Managing Director, both of whom report directly to the Company's Chief Executive Officer (CEO).

The CEO, Mr. Amer Abdullah is a key decision-maker in Diamond Fabrics Limited and Sapphire Dairies (Pvt). Limited. He holds a Master's degree in Business Administration from the United States. Mr. Hassan Asif, the Director Finance, is a fellow Chartered Accountant and reports to Mr. Ali Abdullah. He brings with him an extensive experience of over 15 years. He is supported by a team of qualified and experienced professionals. Most of the senior management has been associated with the Company for a reasonable time period.

While there are no formal management committees in place, the Company ensures effective oversight and coordination through the regular generation of MIS reports. These reports covering key aspects of daily operations are submitted to senior management for review and discussion. Additionally, the need-based meetings are conducted to address specific operational issues and facilitate timely decision-making.

Given the large scale of operations spread at various locations and divided into various segments and processes, the need for quality information systems is paramount to control and maintain the efficiency of operations. The Company has implemented SAP with operational modules including (i) Financial Accounting, (ii) Financial Assets Management, (iii) Production Planning, (iv) Materials Management, (v) Plant Maintenance & Services Management, (vi) Quality Management, (vii) Sales & Distribution, (viii) HRM and (ix) Business Information warehouse.

The Company's products are Oeko-Tex® certified and comply with the human-ecological requirements of the current standards for textiles intended to come into direct contact with the skin. The certified products meet the criteria set by REACH regulations, including restrictions on substances such as azo dyes and nickel. Additionally, they adhere to U.S. compliance standards, except accessories made from glass, reflecting the Company’s commitment to a strong and well-controlled production environment.

The textile exports of the country reached USD 16.7bln in FY24, a slight increase from USD 16.5bln in the previous year, reflecting a growth of 0.93% YoY. The highest contribution came from the composite and garments segment at USD 9.1bln, followed by the weaving segment at USD 6.5bln and the spinning segment at USD 1.0bln. During 8MFY25, the textile exports stood at USD 12.2bln. Pakistan's exports to the USA were USD 4.02bln in FY24 and USD 2.83bln in 8MFY25. Recently, the USA imposed a 29.0% tariff on Pakistani exports. The subsequent impact on the broader dynamics of Pakistan's textile industry, as well as the adaptability of textile manufacturers, will be assessed in due course.

With an overall production capacity of 24,480 spindles, 346 looms, and 1,300 stitching machines, the Company falls in the mid-tier of the respective universe.

The Company’s revenue base is predominantly export-driven, which accounts for ~86% of the total revenue. During 9MFY25, the Company’s topline portrayed a robust growth on a quarter-on-quarter basis reaching PKR 37.2bln (9MFY24: PKR 31.3bln). This was primarily driven by rising demand for made-ups in the international market, translating into stable business volumes despite relatively low product pricing dynamics on the back of stability in the exchange rate. The export sales displayed a sizeable improvement at PKR 31.8bln (9MFY24: PKR 27.4bln). The growth trajectory continued and the local/indirect sales increased to PKR 5.2bln (9MFY24: PKR 4.6bln). The Company’s primary export destinations include Germany, USA, Netherlands, Bangladesh, Spain, UAE, and the Ivory Coast. Geographically, the concentration of the Company’s revenues is diversified, indicating a low geographic concentration risk. The Company’s top ten customer concentration remained at a high end. However, the Company’s long-term relationships with the top-tier international clientage, including several globally recognized brands such as ITX Trading, Levi Strauss & Company, Tesco International Sourcing Limited, Van Delden Textile GmbH, and a few others provide comfort. The imposition of reciprocal tariffs by the United States is expected to adversely impact business volumes. While the immediate effect may be limited, the full material impact is likely to become evident in the coming quarters. Diversification of export markets and a proactive response to evolving trade policies remain critical in mitigating this risk.

During 9MFY25, the Company’s gross profit margin went down to 17.9% (9MFY24: 19.6%) on the back of expensive raw material procurement and elevated salaries and wages expense. The operating margin declined (9MFY25: 5.9%; 9MFY24: 8.6%) in line with the inflationary trend. Due to reliance on external funding sources, the Company’s finance cost remained elevated at PKR 1.5bln (9MFY24: PKR 1.8bln), despite a decrease in interest rates. This trend needs to be monitored in the upcoming quarters. Consequently, the Company’s bottom line exhibited a dilution on a QoQ basis and clocked at PKR 233mln (9MFY24: PKR 606mln), following a low net profit margin reported at 0.6% (9MFY24: PKR 1.9%).

Over the past three to four years, the Company has consistently upgraded its production units and remains focused on expanding capacity to meet growing international demand. Recently, it has commenced the production of dyed yarn and sewing thread as part of its long-term sustainability strategy. Additionally, the Company has also invested in several renewable energy projects to optimize its overall cost structure.

The Company finances its working capital requirements through a mix of internally generated cash and short-term borrowings. As of 9MFY25, the Company’s net working capital cycle slightly improved to 109 days (FY24: 112 days), driven by an optimization of the inventory cycle recorded at 101 days (FY24: 106 days), whereas the receivables cycle remained intact at 26 days. The Company has a limited borrowing capacity as evidenced by the short-term trade leverage of 18.0% (FY24: 19.9%).

In 9MFY25, the Company’s free cash flows from operations clocked at PKR 2.3bln (FY24: PKR 3.9bln), demonstrating a moderate operational performance. Despite a decrease in finance cost, the interest coverage remained largely the same at 1.7x (FY24: 1.8x) as well as the core operating coverage at 0.8x (FY24: 0.9x). The improvement is coverages remains essential for the assigned ratings. The Company’s debt payback period further increased to 10.3 years (FY24: 6.3 years).

The Company has maintained a highly leveraged capital structure. The debt portfolio includes concessional borrowings under SBP schemes such as LTFF and the short-term conventional debt. Furthermore, the drastic increase in STBs led to a significant rise in the Company’s debt book reaching PKR 28.5bln (FY24: PKR 22.9bln). Resultantly, the total leveraging of the Company surged to 76.2% (FY24: 72.9%). The Company’s equity base was further enhanced to PKR 8.9bln (FY24: PKR 8.5bln), primarily driven by the plowback of retained earnings from the prior years.