PACRA Assigns Positive Outlook to Denim-E (Pvt.) Limited

The assigned ratings of Denim-E (Private) Limited ("Denim-E" or "the Company") reflect its improving business profile, underpinned by consistent export-led volumetric growth and management's proactive strategic initiatives amid a challenging operating environment. The Company's vertically integrated operations, encompassing in-house stitching, wet processing, finishing, and packing, support value-added production while ensuring quality control. Denim-E operates as a garment manufacturer and exporter, primarily producing denim and non-denim apparel under a cut-to-pack business model. The Company's product portfolio comprises knit denim, sweat-wear denim, swim-wear denim, and chinos (cotton twill), catering to the export market. The Board of the Company is dominated by sponsors who also hold executive positions, ensuring significant influence over strategic and operational decisions. Decision implementation is facilitated by a team of seasoned professionals, supported by a comprehensive internal control framework deployed across the organization. Denim-E is investing in an eco-friendly, sustainable laundry and washing line, financed through sufficient bank credit lines. The initiative expects to contribute to achieving the annual export goal of USD 32mln, positioning itself to be included in Pakistan's top 100 exporters list by June 2026. In FY25, the topline of the Company surged, reflecting a strong growth of 36.5%, underpinned by high order inflows and volumetric expansion (FY25: 4.1mln pieces, FY24: 3.1mln pieces). While gross margins moderated to 15.6% (FY24: 17.6%) amid elevated input costs, operating and net margins improved to 5.0% and 2.5%, respectively, supported by operational rationalization and monetary easing. To mitigate geographic concentration risk, management has initiated diversification efforts by onboarding new customers and entering the UAE market, while further exploring opportunities in the US, Canada, Australia, and the Middle East. The Company's energy requirements of 600KW are met through a diversified mix comprising captive power generation, biomass, solar energy, and grid supply. Management has installed a 190KW solar plant and substituted gas with biomass fuel. These initiatives have contributed to improved operational efficiency and a more optimized cost structure. The Company adapted a highly leveraged capital structure with total borrowings increasing to 66% (FY24: 46.9%), largely driven by higher short-term borrowings. The Company primarily meets its working capital requirements through a mix of short-term borrowings and internally generated cash flows. The cash flows and coverages remain adequate, with the interest coverage ratio improving to 13.5x in FY25 (FY24: 4.9x), reflecting the Company’s adequate capacity to service its financial obligations.
The ratings are dependent upon the management's ability to sustain their capacity utilization, generate sufficient cash flows, and maintain coverages at an optimal level. The corporate governance framework needs improvement. Adherence to the debt matrix at an adequate level is an imperative for the assigned 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, oversees the company’s operations and is assisted by an experienced management team.