PACRA Maintains the Entity Ratings of Service Global Footwear Limited

Service Global Footwear Limited (‘SGFL’ or ‘the Company’) is a public limited company specializing in the manufacturing and marketing of footwear products. SGFL is a subsidiary of Service Industries Limited (SIL), a prominent name with over six decades of presence in multiple sectors including footwear, tyres and tubes, and technical rubber products. The Company was conceived as an export-oriented entity to broaden the export base of the Service Group by capitalizing on SIL’s expertise in the footwear sector. The assigned ratings take comfort from the longstanding presence of the group in the footwear industry underpinned by SGFL’s evolving position as a trusted footwear atelier for its expanding network of global partners. Pakistan’s footwear sector is majorly comprised of unorganized players (~80%) where craft manufacturers/cobblers possess considerable stake whereas ~20% of the industry is composed of organized players including Servis. During FY24, footwear exports declined by ~9.2% YoY in USD terms and were recorded at USD 162mln (FY23, USD 178mln). Pakistan exported ~21.5mln pairs during FY24 (FY23, 22.4mln pairs) primarily to Europe (Germany, Italy, Netherlands, Spain, & France), UK, & USA. SGFL holds ~13% of the share in footwear exports, primarily channeling footwear, leather & allied items to various international brands. It has intensified its outreach to Europe (which forms ~73% of its current exports), and is also actively pursuing to spread its clientele base in the USA and other countries. In 9MCY24, SGFL witnessed a topline growth of ~14.7% on an annualized basis with ~98% derived from export sales. However, Its profitability margins remained under pressure at all levels during the period owing to an increase in production costs and dampened demand in the European markets. Financial risk profile is demonstrated by adequate working capital management, better cash cycle, & modest coverages. Capital structure remains leveraged, nonetheless, a major portion of the debt is constitutes short-term borrowings availed under export refinance schemes/export finance facilities. Assigned ratings incorporate strong sponsor support augmented by sound governance practices and a comprehensive internal control system. Ratings also take into account the substantial share of profit arising from the SGFL’s associated entity, Service Long March Tyres (Pvt.) Limited, providing the Company with an added income strean. Going forward, SGFL intends to add value by delivering the finest quality footwear through continuous advancements in its processes, achieving a sustained supply chain, ensuring culture inclusivity with more designs, and adopting innovative technology. The ratings incorporate the profitability matrix and growth prospects of SGFL in line with shared financial projections coupled with envisaged expansion plans.
The ratings are dependent on the sustenance of the Company’s leading share in its respective niche and consistent growth amid a changing environment. Prudent financial management and an effective liquidity profile shall remain imperative.

About the Entity
SGFL was incorporated as a Public Limited Company on July 19th, 2019 when the Board of SIL decided to demerge and transfer one of its manufacturing units (Muridke), along with its facility and all relevant assets, operations, & liabilities to a subsidiary SGFL. On April 28th, 2021, the Company got the PSX listing. The principal activities are manufacturing, sale, marketing, import & export of footwear, leather & allied products. The major stake (~79.3%) rests with SIL, followed by the general public (~19.4%), & individual investors (~1.3%). SGFL's board comprises nine members including Mr. Arif Saeed (Chairman) & Mr. Hassan Javed (CEO).