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The Pakistan Credit Rating Agency Limited
Press Release

Date
27-Dec-19

Analyst
Ateeb Riaz
ateeb.riaz@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Siddiqsons Limited

Rating Type Entity
Current
(27-Dec-19 )
Previous
(28-Jun-19 )
Action Maintain Maintain
Long Term A- A-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Siddiqsons Limited (Siddiqsons or 'the Company') is the flagship company of Siddiqsons group and considered pioneer of the denim industry in Pakistan. The Company earns majority of its revenue through direct or indirect exports. The recent rupee devaluation increased the competitiveness of denim industry's exports in the international market. However, the Company was unable to translate this benefit into improved margins as currency devaluation increased the cost of imported raw materials such as cotton and dyes. However, the Company improved its operating and net margin through effective control of operating costs and lower finance costs. The bottom-line is supplemented by steady investment income, mainly in the form of dividends, providing cushion against industry challenges. The Company has a moderately leveraged capital structure, strong coverages and adequate working capital management. This is signified by limited room to borrow at trade asset level. The rating incorporates financial strength of the sponsors and likely support, if needed.
The ratings are dependent upon the management's ability to capitalize on growth opportunities in an increasingly competitive landscape while also improving margins. Sustainability of investment income remains important. Further, the elimination of asset liability mismatch in working capital is critical. Meanwhile, excessive borrowing, leading to higher leverage, and/or deterioration in coverages can impact the ratings negatively. A strong governance framework will be important, going forward.

About the Entity
Siddiqsons Limited was incorporated as a public unlisted company in 1987. The Company is engaged in the production and sale of denim yarn, fabric and garments. Siddiqsons is a vertically integrated composite textile unit with production facilities located at Hub and Karachi. The company has 26,800 spindles and 150 looms. The denim unit has production capacity of 60,000m per day. The company is self-sufficient in energy production and meets its energy requirements through captive power generation. The majority stake in the company is owned by Tariq family (89%) while rest (11%) is owned by family friends.

Overall control of the Company vests in the 4 member Board of Directors. There are no independent or non-executive directors on the board. Mr. Tariq Rafi is the Chairman and CEO 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 COO of the Company and is assisted by an able and experienced management team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.