PACRA Assigns Initial Entity Ratings to Denim-E (Pvt.) Limited

The ratings of Denim-E (Pvt.) Limited incorporates progressive growth of the Company in the initial years. The Company is a family-owned business. Apart from this company, sponsor family is involved in real estate and Biogas businesses. Denim-E is principally engaged in the manufacturing and export of garments/made-up, clothing, knitwear and weaving of apparels. The Company have cut to pack capacity of 6,000 pieces/day which accumulate to 2.1mln pieces annually. Governance framework can be further strengthened over the course. The Company’s management is cognizant of the textile industry’s volatility and has planned phase-wise up gradation of machinery to remain competitive. Healthy growth has been recorded over last three years. The Company’s topline increased by 67% YoY, during FY21, to stand at PKR 1,096mln; a resultant of higher capacity utilization accompanied with better prices. Sales mix represents major contribution from export market; FY21 majorly tilted towards exports 99% of total revenue (FY20: 99%). The Company enjoys customer base with several export destinations where various retailers are also on board. Ratings incorporate sound financial risk manifested by significant improvement in working capital and interest coverage. The Company has adequate financial profile characterized by adequate coverages, low leveraged capital structure and improving working capital management. Going forward, the planned CAPEX is expected to bring in efficiency and improve margins. During the period Jul-DecFY21-22, textile exports of the country surged 26 percent YoY, fielding $9.39 billion in total export remittances, as compared to $7.44 billion in the same period last year. This is attributable to increase in demand for textile products internationally and channeling of export orders towards Pakistani market. On a YoY basis, the exports of value-added textile items increased in both quantity and value in December 2021. Going forward, the textile sector’s outlook is expected to stay positive in the medium term where the demand for textile products is expected to sustain. In the local market, the textile sector has recorded strong performance.
The ratings are dependent on the management’s ability to uphold the entity’s growing performance trend. Meanwhile, maintaining strong margins and coverages to fulfill financial obligations will remain critical. The company is expected to adhere to conservative financial discipline, which would be crucial to ratings.

About the Entity
Denim-E (Private) Limited was incorporated on August 13, 2018 as a private limited company. The Company is principally engaged in the manufacturing and export of garments/made-up, clothing, knitwear and weaving of apparels. The Company has cut to pack capacity of 6000 Pieces/day which accumulate to 2.1mln pieces annually.
The ownership of the Company rests with the family of Mr. Khalid including his son, nephew and brothers. The major shareholding of the Company owned by Mr. Azhar Khalid (51%). He will increase his stake. The Company has six-member board with presence of sponsors and their families. The position of CEO is with Mr. Azhar while the Chairman of the Company is Mr. Khalid Farooq. Sponsoring family dominance and the absence of independent oversight indicates room for improvement in the governance framework of the Company.