PACRA Maintains Entity Ratings of Siddiqsons Limited

Siddiqsons Limited, the flagship company of Siddiqsons group, is the pioneer of the denim industry in Pakistan. The company has managed to increase its revenues and exports in line with the rising global demand for denim and garments. The company's top line is driven mainly by exports, with Bangladesh as the prime export location. The gross margins of the company remain under pressure, due to higher raw material prices, however other costs stayed under control as the company sustained its operating margins. Recently, the dynamics have changed favourably for the textile industry with rupee devaluation and better pricing for products due to increasing prices of cotton. Ratings draw comfort from income generated from the strategic investments made by the company in banking, energy, real-estate and metal industries. The company's high inventory needs during cotton procurement season gave rise to increased working capital requirements. However, prudent working capital management means that the company's financial profile remains strong with low leveraged capital structure and strong coverages. Ratings reflect sponsors ability to provide support when required, as demonstrated in the past.

The ratings are dependent upon the management's ability to capitalize on growth opportunities in a competitive landscape while also improving the margins. Excessive borrowing, leading to higher leverage, and deterioration in coverages can impact the ratings negatively. Meanwhile, going forward a strong governance framework will be important.

About the Entity
Siddiqsons Limited incorporated in 1987 is engaged in the production and sale of denim fabric and garments. Siddiqsons is a vertically integrated composite textile unit with production facilities located at Hub and Karachi. The company has 26,000 spindles, 265 looms and has the capacity to produce 38mln meters of denim every year. The company is self-sufficient in the energy production and has the capacity to produce 28MW energy. The majority stake in the company is owned by Tariq family (89%) while rest (11%) is owned by the friends of the family.

Overall control of the board vests in 4 member board of directors. There are no independent or non-executive directors on the board. Mr. Tariq Rafi is the Chairman of Siddiqsons and is a recipient of the coveted Civil Award Sitara-e-Imtiaz. He has extensive experience in textile, banking and real-estate. Mr. Abdur Rahim, son of Tariq Rafi, is the current CEO of the company and is assisted by an able and experienced management team.