Reliance Cotton Spinning Mills Limited (‘Reliance Cotton’ or ‘the Company’) was incorporated in Jul-91 as a public limited company, listed on PSX. The Company's stocks are traded with a symbol of RCML.

In 1970, Sapphire Group ('the Group') entered in the business arena by setting up small textile ventures. Over time, the Group has become a renowned name and an intergrated textile player that has expanded its local and international reach. The Group holds interests in dairy, power generation, and textile and retail segments. The Company was established in 1991 and started production in Jul-92.

Reliance Cotton is engaged in the production and selling of high-quality yarn; 6 Ne to 80 Ne (single & double), plied, Slubs, melanges, blends and variety of yarns. The Company has 59,232 spindles and a production capacity of  44.5mln pounds per annum. The production facilities are located in Sheikhupura, while the head office is located in Lahore.

Major stake (80%) in the Company is held by the Group through associated companies and related parties. Directors hold (4.4%) stake, Financial Institutes and Joint stock Companies hold (5.3%) stake, While, the remaining (10.3%) stake is held by the General Public.

The Company's ownership structure is expected to remain stable as the sponsors are among the well-established investors in Pakistan.

The Group is one of the largest vertically integrated textiles setups in Pakistan and holds interests in dairy, power generation, and textile and retail segments.

The Company gathers financial strength from the Group, if needed. PACRA rates other group entities aswell, namely: Diamond Fabrics Ltd.(A-/A2), Sapphire Fibres Ltd.(A+/A1), Sapphire Finishing Mills Ltd.(A/A1), Sapphire Retail Ltd.(A-/A2) and Sapphire Dairies (Pvt) Limited (A-/A).

Overall control of the Company lies with the seven member board, comprising one Executive, four Non-Executive, two Independent Directors. The BoD has a dominating presence of sponsoring family with one female Director.

Mr. Shahid Abdullah, the Chairman, has been associated with the Group since 1980 and possesses extensive expertise across the textile value chain, including spinning, weaving, knitting, dyeing, finishing, and power generation. He also serves as the CEO of Sapphire Fibres Limited and Sapphire Electric Company Limited. Mr. Shayan Abdullah has been serving as the Chief Executive Officer of Reliance Cotton Spinning Mills Limited for the past eleven years and is also a Director at Sapphire Fibres Limited. In his capacity, he oversees raw material procurement, accounts, and marketing for the spinning divisions of Sapphire Fibres Limited. Mr. Amer Abdullah, a Non-Executive Director, has been associated with the group since 1990 and currently serves as the CEO of Diamond Fabrics Limited and Sapphire Dairies. Mr. Yousuf Abdullah, also a Non-Executive Director, serves as the CEO of Sapphire Finishing Mills Limited and sits on the boards of other group companies. Mr. Nabeel Abdullah, a Non-Executive Director, oversees raw material procurement, sales, production, accounts, and finance at Sapphire Textile Mills Limited, with a particular focus on the weaving segment.

The BoD met five times during the year. The BoD meetings had full attendance and minutes are properly recorded. Three subcommittees - Audit Committee, Risk Committee and Human Resource Committee - assists the BoD in relevant decision and policy formation matters. Audit and Human Resource Committees are chaired by an Independent Director. While, the Risk Committee is chaired by the Chairman.

External Auditors - M/S. Shinewing Hameed Chaudhri & Co. Chartered Accountants issued an unqualified audit report on financial statements for FY25. The audit firm is QCR rated and on SBP's panel in category "A".

The Company’s overall operations are managed by eleven key management personnel including the CEO. Three of them are designated as employed Directors. All departmental heads reports to the COO, who then reports to the CEO. The CEO reports to the BoD. However, head of internal audit and human resource reports administratively to the CEO and functionally to the respective BoD committee.

Mr. Shayan Abdullah, is the CEO of the Company for the last 11 years. Mr. Farrukh Raza Bashir, an Executive Director, possesses 38 years of industry experience. Mr. Jawwad Faisal, Director Finance, is an FCA and possesses ~23 years of experience. They are assisted by an experience management team.

The Company lacks presence of management committees. However, MIS reports relating to daily operations are generated and submitted to senior management for discussion on regular basis. Furthermore, there are regular need-based meetings to proactively manage the affairs.

Reliance Cotton has deployed an Oracle-based ERP solution – Oracle E-business suite – for quality information to control and maintain efficient operations. The Company’s monthly MIS comprises comprehensive performance reports which are reviewed frequently by the senior management.

RCML has outsourced internal audit function to M/S. KPMG Taseer Hadi & Co., who coordinates and reports to the Board Audit Committee (BAC). The Company has set up effective mechanisms for identifying, assessing, and reporting all types of risks arising from the business operations. These risks include strategic, operational, financial, or compliance risks, which may compromise achieving the Group's overall business objectives.

Textile exports reached USD 17.9bln in FY25, a modest rise from USD 16.7bln the previous year, reflecting a 7.2% year-over-year growth. The largest contribution came from the composite and garments segment, at USD 14bln, which included the weaving segment at USD 1.8bln and the spinning segment at USD 0.7bln. The production of cotton cloth in FY25 declined by approximately 0.7% year over year, reaching around 877.1mln square meters. During FY25, about 25.3% of the cotton cloth produced was exported (compared to roughly 27.2% in FY24), with the rest used for the domestic market. The country's fabric exports fell by approximately 4.4% in FY25 (FY24: up about 5.8% YoY), with approximately 23.4% of Pakistan's cotton cloth exports going to Bangladesh (compared to about 19.9% in FY24), followed by the USA with about 8.1% of cotton cloth exports (compared to approximately 7.8% in FY24). In FY25, the transition from the final tax regime to the normal tax regime is expected to affect the profitability of export-oriented units, with a 29% tax on profits and a super tax of up to 10%. The recent removal of GST exemption (Finance Bill, 2025) on textile inputs for exporters registered under the Export Facilitation Scheme (EFS) will offer tax protection and create a level playing field for domestic cotton and yarn producers. Currently, internat ional cotton prices are higher than the price of locally produced cotton. The gap has widened to approximately 9.8 cents per pound (as of July 18, 2025), resulting in an average increase of about USD 36.8 per bale of imported cotton. A greater reliance on imported cotton could Lead to higher raw material costs, ultimately impacting yarn prices and profit margins for the sector. Conversely, energy and finance costs are expected to stay within a range, given the projected reduction in interest rates and the absence of any major energy tariff increases. Considering the current climate change, flooding in major cotton regions, and shifting crop patterns, the target of approximately 10.2mln bales for FY26 appears challenging.

The Group holds strong presence in the country’s textile sector, while Reliance Cotton with 59,232 spindles acquires a position in the middle tier players of the spinning segment.

During FY25, the Company’s topline reached PKR 15.8bln (FY24: PKR 15.0bln), reflecting an increase of approximately 5%, primarily driven by higher local sales. However, export sales posted a declining trend, with exports standing at PKR 3.2bln in FY25 compared to PKR 11.9bln in FY24, marking a significant decline of around 73%. Nevertheless, improved pricing and stronger local demand supported the overall performance. During 6MFY26, the Company generated a topline of approximately PKR 7.3bln. Going forward, the revenue stream is expected to remain stable.

The gross profit margin declined to 12.2% during FY25 (FY24: 14.8%), primarily due to an increase in raw material costs. The Company’s operating profit margin also decreased and stood at 8.0% in FY25 (FY24: ~12.0%), mainly attributable to higher operating expenses. Consequently, the net profit margin declined to 4.5% (FY24: 8.7%) due to an increased tax burden. During 6MFY26, the Company reported an improved gross profit margin of 14.3%, operating profit margim of 10% and net profit margin of 4.2%. Going forward, the Company needs to focus on managing raw material and operating costs to sustain its margins.

The Group has a well-established mark in the textile segment. Reliance Cotton has to strengthen its footprint along with a capacity expansion that streamlines the conversion costs. The Company must instill flexible plans to overcome operational challenges. However, regular BMR in the spinning and weaving segments during FY25 are likely to have a positive impact on productivity, going forward

The Company’s working capital requirements are met through a combination of internal cash generation and bank borrowings. Net working capital days improved to 174 days (FY24: 184 days), primarily due to reduced inventory holding. Inventory days decreased to 132 days (FY24: 147 days). Trade payable days declined to 7 days (FY24: 14 days), while trade receivable days slightly improved to 49 days (FY24: 51 days). As of 6MFY26, working capital cycle stood at 186 days. The Company maintains a comfortable borrowing cushion on its balance sheet.

Interest coverage remains a function of the Company’s free cash flows and finance costs. During FY25, the Company reported Free Cash Flow from Operations (FCFO) of approximately PKR 1.7bln (FY24: PKR 2.5bln). The decline in FCFO is primarily attributable to relatively lower profitability levels and increased cost pressures during the period. The Company’s interest coverage ratio stood at 2.8x in FY25 (FY24: 2.7x), reflecting a slight improvement and indicating the Company’s adequate capacity to meet its finance costs from operational earnings. However, coverage levels remain moderately stretched and remain sensitive to further increases in borrowing costs or deterioration in profitability margins. The Company’s debt payback ratio improved slightly and stood at 1.7x in FY25 (FY24: 1.6x), reflecting the Company’s reasonable ability to repay its borrowings through internally generated cash flows. As of 6MFY26, the Company's debt coverage stood at 1.7x. Going forward, maintaining stable profitability margins, prudent financial discipline, and controlled borrowing levels will remain critical to sustaining the Company’s coverage ratios.

As of FY25, the Company’s debt-to-equity ratio stood at 42.1% (FY24: 43.4%), reflecting a relatively stable leverage position. Total borrowings increased to PKR 6.8bln (FY24: PKR 6.6bln), primarily due to higher short-term borrowings (STBs), which rose to PKR 4.6bln (FY24: PKR 3.4bln) to support working capital requirements. Meanwhile, the Company’s equity base strengthened to PKR 9.3bln (FY24: PKR 8.6bln), supported by higher profit retention. As of Dec-26, the Company’s equity stood at PKR 9.7bln with debt-to-equity ratio of 48.5%, indicating relatively elevated leverage levels. Going forward, sustaining a balanced capital structure will remain essential to maintaining financial stability and supporting growth.