PACRA Maintains Entity Ratings of Siddiqsons Limited, Assigns 'Rating Watch'

Siddiqsons Limited (Siddiqsons or 'the Company') is the flagship company of the Siddiqsons group and is considered a pioneer of the denim industry in Pakistan. Siddiqsons mainly derives its revenue from the manufacturing and sale of denim in addition to having a portfolio of strategic investments. The Company achieved a moderate growth in revenue of ~5% on the back of rupee depreciation, while the volumes remained in line with the corresponding period of last year. Denim industry enjoys relatively better margins that are reflected in the Company's profitability. Meanwhile, the diverse investment portfolio generates steady investment income, mainly in the form of dividends, supporting the Company's bottom line. Export orders have been postponed or cancelled for all industry players due to COVID-19 outbreak, including Siddiqsons, as the USA and Europe (major denim export destinations) are in lockdown to contain the virus. Resultantly, ready-made garments exports saw a decline of ~74% in April. In this backdrop, the Company's plant resumed operations after closure as per government directives. However, it will be facing pressure in terms of sales and liquidity. The recent partial reopening of export markets is a positive sign but it will take time for demand to gain traction. The Company is diversifying its product slate to cater to larger market. Siddiqsons continues to maintain a moderately leveraged capital structure. Although the working capital cycle of the Company has lengthened recently due to delays and cancellation of orders, its working capital management remains adequate with cushion at trade level available with strong coverages. The ratings incorporate financial strength and proven track record of the sponsoring family. The sponsors have provided a loan to support operations.
The 'Rating Watch' signifies the COVID-19 outbreak and a challenging economic environment. The entire textile chain is expected to be impacted due to the lockdown in Pakistan and major export destinations of the sector. The demand is expected to contract while the eventual resumption of operations and recovery of the sector remains uncertain. The Government and SBP has announced several initiatives to provide support. PACRA will monitor the situation and accordingly take action.
The ratings are dependent on sustaining operations amidst prevailing tough conditions. Full resumption of operations and sales will remain crucial. Meanwhile, prudent working capital management would be important. Sponsor support, especially in the short-term, will be critical.

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 26,832 spindles and 265 looms. The weaving unit has a capacity of producing ~31 million meters of denim every year. The company is self-sufficient in energy through captive power generation. The majority stake in the Company is owned by the Tariq family.
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 sectors. Mr. Abdur Rahim, son of Tariq Rafi, is the current COO of the Company and is assisted by an able and experienced management team.