Analyst
Sehar Fatima
sehar.fatima@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains the Entity Ratings of Diamond Fabrics Limited
Rating Type | Entity | |
Current (14-Jul-23 ) |
Previous (15-Jul-22 ) |
|
Action | Maintain | Initial |
Long Term | A- | A- |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | - | - |
The ratings of Diamond Fabrics Limited reflect the company’s strong business profile emanating from its presence in the broader value chain in the international market; enabling the company to fare better against volatility. The company’s ownership rests with the Sapphire Group. The company is vertically integrated with four divisions (i) Spinning, (ii) Weaving iii) Denim, and iv) Apparel. Over the last two years, the company's revenue base recorded a healthy increase. During FY22, the company’s top line witnessed a sizeable improvement to stand at PKR 24.1bln (FY21: PKR 19.2bln) where the sales mix remained skewed towards the export market. Net profitability recorded growth whilst the margins and coverages remained good. Management of receivables is essential. The customer concentration has remained high during FY22. The financial matrix reveals largely the same leveraging despite an increase in short-term borrowings. The enhanced equity base bodes well for the enhanced risk absorption capacity. During 9MFY23, the company’s revenue base further increased to PKR 24.7bln (9MFY22: PKR 17.9bln). The margins and coverages remained in a comfortable range. The total borrowings remain largely the same. During 9MFY23, the textile exports were valued at $12.47bln compared to $14.24bln, reflecting a 12% decline YoY - the declining trend has been recorded in the last two quarters. The Country’s textile exports for the month of March clocked in at US$1.26bln, up 7% MoM. The decline in the previous overall exports is driven by attrition in the demand pattern of export avenues. The hike in cotton prices and low demand in international markets is also a challenge. During the month of March, value-added textile exports increased by 6% MoM to US$863mln mainly due to Readymade Garments and Knitwear increasing by 8% and 12% MoM respectively while towels decreased by 6% MoM. Basic textiles witnessed an increase of 8% MoM to US$230mln in Mar-23. In volume terms, Knitwear, Readymade Garments, Bedwear, and Towels increased by 18%, 13%, 5%, and 2% MoM respectively. The demand pattern is expected to improve in the upcoming quarters.
The ratings are dependent on sustaining the business profile of the company by maintaining profitability and margins achieved from core textile operations. The sustainability of non-core income and prudent management of surplus funds will be ratings critical.
About
the Entity
Diamond Fabrics Limited – a public, unlisted entity – commenced operations in 1988 and is engaged in the manufacturing of value-added textile products. The company has made separate business units for its business which include (i) Spinning, (ii) Weaving iii) Denim iv) Apparel. Diamond Fabrics Limited is majorly owned by Sapphire Holding Limited (38.28%), SFL (30.69%), and the remaining shareholding is divided among different family members of Sapphire Group. Overall control vests with an eight-member Board of Directors, dominated by the sponsoring family: five family members, including the CEO. The CEO, Mr. Amer Abdullah, belonging to the sponsoring family, possesses expertise in the textile sector and oversees company affairs. He is assisted by a team of highly qualified and seasoned professionals.