PACRA Upgrades the Entity Ratings of Sapphire Retail Limited

The rating upgrade of Sapphire Retail Limited ("the Company" or "SRL") reflects its successful identity building as one of Pakistan's leading lifestyle brands. SRL has demonstrated consistent profitability and robust business volume growth over the years, with reinvested proceeds strategically enhancing its business risk profile. The Company's long-term business philosophy focuses on building a strong retail brand with steady profit generation to achieve sustainable growth. The rating derives comfort from the well-established and robust profile of its sponsoring group, the Sapphire Group—one of Pakistan’s largest manufacturers and exporters of textile products. SRL serves as the retail arm of the Sapphire Group and operates as a wholly owned subsidiary of Sapphire Textile Mills Limited. As we advance, as the digital landscape continues to evolve, customer experience remains pivotal for capitalizing on emerging opportunities. The Company is committed to investing in two key areas: (i) technological advancements in the e-commerce segment and (ii) comprehensive training for staff at retail outlets. To enhance and streamline its online platform, SRL has invested in Shopify stores and plans to implement a customer service solution aimed at improving the digital experience and fostering better online interactions. The Company owns a wholly-owned subsidiary, Designtex (SMC-Private) Limited (DSPL), which is engaged in the manufacturing, stitching, and trading of textiles and related products. DSPL acts as the principal vendor for SRL and plays a key role in strengthening its supply chain matrix while extending commercial credit for merchandise. The Company offers a comprehensive range of clothing and ancillary brands catering to various segments of the retail market, including unstitched fabrics, ready-to-wear (RTW), fragrances, and accessories. SRL's product categories and price ranges cater to multiple income tiers and age groups within society, thereby enhancing its business sustainability profile. It operates a network of 50 local retail outlets and one international store. During FY24, the Company’s top line has shown an impressive organic growth of 52.9% YoY basis (FY24: PKR 32.74bln; FY23: PKR 21.41bln) mainly attributable to a volumetric increase in RTW followed by unstitched fabric segment and fragrances. The increase in marketing and administrative expenses aligns with prevailing inflationary trends and the Company’s strategy to expand its market share. Despite cost pressures, the Company effectively managed to pass these on to customers, thereby maintaining its gross margins. The Company offloads its short-term borrowings, leading to an improvement in its net margin through optimization of the finance cost-to-sales ratio. However, some of this benefit evaporated due to a higher tax burden. The financial risk profile of the Company is considered strong, underpinned by sound credit quality metrics. The cloth retail market is highly fragmented and dominated by the unorganized segment, posing a significant growth opportunity for organized players to capture market share through market penetration and bridging the gap.
The ratings are dependent on maintaining a profitability matrix at an optimal level while expanding business volumes. The continuity of cash flow generations from core operations remains critical. The built-up of the investment portfolio will further amplify the liquidity profile of the Company. Innovation in the RTW segment will play a pivotal role in improving margins.

About the Entity
SRL is an unlisted, public limited Company, incorporated in June 2014. The Company has a five-member sponsoring family board, comprised of one executive and four non-executive directors. The board is chaired by Mr. Nadeem Abdullah, while the CEO, Mr. Nabeel Abdullah, oversees the Company’s affairs.