The Pakistan Credit Rating Agency Limited
Press Release


Muhammad Harris Ghaffar

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PACRA Maintains the Entity Ratings of Khaadi Pakistan (SMC-Pvt). Limited

Rating Type Entity
(03-Jun-24 )
(01-Jun-23 )
Action Maintain Upgrade
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect the appreciable presence of Khaadi Pakistan (SMC-Pvt). Limited (“Khaadi” or "the Company”) in the competitive retail fashion industry of Pakistan. The Company primarily operates under the umbrella of the Khaadi Corporation Limited (KCL) - a Holding Company. The rating takes comfort from the ownership transition of a 20% stake to IFC (International Financial Corporation) through a series of phase-wise investments up to USD 25mln in KCL. The Khaadi has shown endurance through a gradual strategic shift from go-wide (expanding brand presence geographically by opening numerous stores across multiple locations.) to go-deep (consolidating the number of stores to give a better customer experience) to penetrate the B2C category and elevate the customer experience. This transition has benefitted the Company by augmenting the average store time of walk-in customers. In the future, the company plans to progressively convert "normal category stores" into "experience hub stores" as part of its strategy to ameliorate the point-of-purchase display for its prime product categories, including Unstitched Fabric (UF), Ready-to-Wear (RTW), and Emerging Concepts (EC). The majority of the Company sales are carried out by retail outlets and remaining through online platform-e-commerce driven by customer preference trends. The Company's product slate divests into UF, RTW, EC, and Specialized Hand-woven fabric under the brand name, “Chapter II”. In business-wise product contribution, the foremost product is Unstitched fabric in the local market and Ready to Wear in the international market. The Company’s top suppliers are well-established and stable entities providing comfort to the business sustainability. During 6MFY24, the Company generated a topline of PKR 13.1bln (FY23: PKR 27bln) amidst macroeconomic and industry-specific challenges. The margins dipped minutely depicting the industry norm. The financial risk profile of the Company is considered moderate with improved coverages. The working capital requirements of the Company are met through internally generated cashflows and short-term borrowings. The Company has maintained a moderately leveraged capital structure. The size of the textile industry in Pakistan is estimated to be PKR 2.62Trn ~3.0% of the total GDP as of FY23. The composite & garment segment in the textile sector has a contribution of ~ PKR 1.6Trn mainly dominated by knitwear, readymade garments, bedwear, and towels followed by PKR 775bln from spinning and PKR 637bln from weaving. The escalation in energy tariffs & finance costs, PKR devaluation, and ensuring the availability of optimum quality raw materials are prime challenges specific to the industry to assess the international market and stay price-wise competitive.
The ratings are dependent on the Company's ability to sustain its business profile while maintaining its profitability matrix at an optimal level. The sustainability of margins and improvement in coverages while expanding business volumes remain critical. The sufficient generation of cashflows to meet working capital requirements while retaining the debt matrix at a moderate level is a prerequisite. The sponsor’s commitment to providing support gives comfort to the ratings.

About the Entity
Khaadi, a multinational Pakistani retail fashion brand commenced its operations in 1998 by offering kurtas and unstitched fabric made from the hand-woven fabric. It is operating with a retail network of 41 stores in Pakistan and has a presence in the UK, UAE & USA. The founder, Mr. Shamoon Sultan owns an 80% stake while IFC holds a 20% indirect stake in the Company.

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.