PACRA Maintains the Entity Ratings of Diamond Fabrics Limited

The ratings of Diamond Fabrics Limited (“DFL” or “the Company”) 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. It operates under the umbrella of Sapphire Group. The Company is a truly vertically integrated unit operating with four business divisions which include (i) Spinning, (ii) Weaving iii) Denim, and iv) Apparel. The Company’s foremost products in terms of revenue contribution are multiple categories of fabrics, followed by garments and yarn. The Company’s top line has demonstrated consistent growth over the preceding years predominantly vested with export segment sales of fabrics and garments. During 9MFY24, despite the recessionary trend in the global market, the Company’s topline indicated an impressive growth of 26.6% YoY clocking at PKR 31.37bln (9MFY23: PKR 24.76bln) as the Company expanded its footprint and augment their capacities in the apparel segment. Over the years, the Company has executed CAPEX for BMR in the Apparel segment and gradually ventured into backward integration like spinning and weaving segments, creating a buffer in the supply chain management framework. Recent expansion in the Apparel segment and continuous BMR activities exacerbated the sales in terms of volume as DFL capacity reached up to ~750,000 pieces per month. The dilution in gross margins is mainly due to expensive raw material procurement and a hike in energy tariffs. The Company secured a net profitability of PKR 606mln (9MFY23: PKR 1.4bln). The higher operating expenses and inflated finance costs are the other contributing factors that impacted the profitability matrix. The Company's financial risk profile is considered adequate with the working capital cycle remaining stable. The working capital requirements of the Company are primarily fueled through short-term borrowings. The Company maintained a leveraged capital structure with adequate coverages and cashflows. The enhanced equity base reflects the improved risk absorption capacity. On the strategic side, the Company intends to further enhance its production capacity in the Apparel segment to ~800,000 pieces per month. This is attributed to a sizeable growth in the consumption of garments in the international market. 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 sustainability of margins and net profitability while expanding the business profile of the Company. The management of coverages and working capital cycle remains essential.

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. It is a vertically integrated unit divested with all aspects of the textile value chain. It 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 the Company affairs.