PACRA Maintains the Entity Ratings of Denim-E (Pvt.) Limited

The assigned ratings of Denim-E (Pvt) Limited ("DEPL" or "the Company") reflect its position as an emerging player specializing in the production of sustainable denim apparel. The Company’s business philosophy focuses on identifying and addressing market gaps, particularly within niche denim segments. Since its inception in 2018, DEPL has operated as an export-oriented unit and has demonstrated a progressive business risk profile. Over the past six years, the Company has consistently experienced organic growth in business volumes, achieving sales of USD 19.68 million as of FY24. This growth is driven by capital expenditures (CAPEX) aimed at capacity expansion to meet the demands of existing and new customers, alongside the exploration of new export destinations. The management is keenly aware of the textile industry's volatility and is in the process of upgrading and adding machinery in phases to maintain competitiveness. The Company produces a variety of denim and non-denim products, including knit denim, sweat-wear denim, swimwear denim, raw authentic denim, and chinos (non-denim). Men's denim products account for the largest portion of the company’s valuation, followed by products for women and children. Healthy topline growth has been recorded over recent years, reaching PKR 5.6 billion in FY24 (compared to PKR 3.5 billion in FY23). The Company’s management is focused on sustaining this growth trajectory by exploring new export opportunities. While the top five customers contribute a significant portion of revenue, the management is negotiating with prominent international brands to reduce this dependency and enhance business sustainability. An increase in operating expenses, coupled with a higher tax burden resulting from the transition from the Final Tax Regime (FTR) to the Normal Tax Regime (NTR) for export-oriented units, has impacted the company’s cost structure, leading to a dilution of its profitability. However, the Company’s financial risk profile remains stable, with sufficient capacity to borrow and meet working capital requirements. The capital structure is moderately leveraged, with adequate cash flows and coverage. Improvement in overall credit quality metrics is necessary for future rating transitions. In FY24, Pakistan’s textile exports reached USD 16.7 billion, a slight increase from USD 16.5 billion in the previous year, reflecting a growth of 0.93% year-on-year (YoY). The composite and garments segment contributed the largest share at USD 9.1 billion, followed by the weaving segment at USD 6.5 billion and the spinning segment at USD 1.0 billion. In the first five months of FY25, textile exports totaled USD 7.6 billion. The transition from the Final Tax Regime to the Normal Tax Regime in FY25 is expected to affect the profitability of export-oriented units, with a 29% tax on profits and an additional super tax of up to 10%. However, the consistent decline in policy rates over the past three quarters, along with expectations of further reductions, is anticipated to provide a cushion to the financial metrics of the industry.
The ratings are dependent on the management’s ability to uphold the entity’s growing performance trend. Meanwhile, maintaining strong margins and coverages to fulfill financial obligations will remain critical. The company is expected to adhere to conservative financial discipline, which would be crucial to ratings.

About the Entity
Denim-E (Private) Limited was incorporated on August 13, 2018, as a private limited company. The major shareholding is owned by Mr. Azhar Khalid (95%). The Company has a two-member board. The CEO, Mr. Azhar Khalid, overseas Company’s operations and is assisted by an experienced management team