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The Pakistan Credit Rating Agency Limited
Press Release

Date
24-Jun-21

Analyst
Ahmad Saad Siddiqi
ahmad.saad@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
(24-Jun-21)
Previous
(24-Jun-20)
Action Maintain Maintain
Long Term A- A-
Short Term A1 A1
Outlook Stable Stable
Rating Watch Yes Yes

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 ~2% on the back of rupee depreciation, while the volumes remained in line with the corresponding period of last year. Despite the challenges faced by the Company at the end of FY20 due to COVID-19, it was able to enhance profitability during 9MFY21. Accordingly, rating watch has been removed. Sales mix remained dominated by healthy exports. Similarly, margins recorded favorable increase. 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 and rental income, supporting the Company's bottom line. The Company is diversifying its product slate to enhance outreach to export avenues. During 3QFY21, Siddiqsons paid off more than half of its short term debt, effectively, reducing leverage. Although the Company’s working capital cycle was stretched, its working capital management remains adequate with cushion at trade level available with good coverages. The ratings incorporate financial strength and proven track record of the sponsoring family.
The ratings are dependent on the Company’s ability to sustain its operations in prevailing conditions. The management is cognizant of these challenges and is working on this front. Meanwhile prudent working capital management and generating sustainable cashflows from core operations are important. Significant deterioration in business profile due to prolonged downturn leading to deterioration in coverages and/or margins will impact the ratings.

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. Yousuf Adil, the Chartered Accountants, are the auditors of the company. The auditors have qualified the audit report based on treatment of the investment property in the financial statements for the period ended 31 Dec 2020.
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.

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.