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 operates as a fully vertically integrated textile unit, encompassing the entire value chain—from spinning to finished apparel. This integration supports operational efficiency, quality control, and cost optimization across all stages of production. The Company’s foremost product is denim jeans in terms of revenue contribution. Over the preceding years, the Company has established a strong footprint in the global market and has demonstrated a consistent growth in its revenue base, supported by an upswing in the business volumes. During 9MFY25, despite the challenging global business environment, the Company’s topline indicated a notable growth on a QoQ basis, clocking at PKR 37.2bln (9MFY24: PKR 31.3bln). This growth was supported by the Company’s ongoing strategic expansion and capacity enhancement in the apparel segment, resulting in an incremental addition of approximately 250,000 units per month over the past year. The revision of the minimum wage rate, stability in the USD exchange rate, and the increased tax burden on export-oriented units following the transition from the Final Tax Regime (FTR) to the Normal Tax Regime (NTR) were the key factors impacting the Company's cost structure, resulting in a dilution of profitability. The Company secured a net profitability of PKR 233mln (9MFY24: PKR 606mln). The planned investment in alternate energy sources, including a biomass project and a solar project financed primarily through long-term conventional debt, is expected to optimize the Company’s overall cost structure in coming years. The Company's financial risk profile is considered adequate with a stable working capital cycle and leveraged capital structure. The funding matrix of the Company is heavily concentrated towards short-term borrowings. The enhanced equity base reflects the improved risk absorption capacity. Lately, the Company diversified its product portfolio by modifying its existing spinning unit to enable the production of specialized dyed yarn and sewing thread. The in-house production of specialized sewing thread provides DFL with a competitive advantage through import substitution and improved cost management. Going forward, the management intends to scale up production volumes by onboarding new, higher-potential customers, with a strategic focus on expanding the revenue base rather than relying solely on core profitability. This approach is expected to enhance capacity utilization and support long-term growth. Aligning with this, the Company intends to further enhance its existing production capacity of the apparel segment to ~1.2 million pieces per month.
The ratings are dependent on the sustainability of margins and improvement in net profitability while expanding the business profile of the Company. The optimization of the funding matrix at an optimal level and improvement in coverages remain critical for the assigned ratings.

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%) with the remaining shareholding distributed 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.