PACRA Assigns Initial Entity Ratings to Azgard Nine Limited

Azgard Nine Limited (“ANL” or “the Company”) is a known player in the denim space of the country. ANL, as a fully integrated composite unit, operates across all aspects of the textile value chain—from open-end spinning to value-added finished products. The Company’s product slate includes multiple categories of yarn ranging from 6s to 30s, denim fabric and denim apparel. The Company’s operational infrastructure features efficient machinery designed to meet the quality standards of its leading international clients. Over the years, the Company’s topline demonstrated a steady growth through volumetric expansion and improved operational efficiency. During 1QFY26, the Company achieved a topline of PKR 9.4bln (FY25: PKR 40.6bln, FY24: PKR 36.5bln). The growth was primarily driven by an increase in export of garments, contributing PKR 7.0bln (FY25: PKR 26.6bln, FY24: PKR 21.3bln). The gross margins moderated slightly, mainly attributable to the pricing pressure in the yarn and garment segments. In terms of revenue contribution, the apparel segment occupies an apex position in the business valuation matrix of the Company. ANL operates under a unique business model, utilizing approximately 65% of pre-consumer and post-consumer waste for the production of yarn. This strategy translated into lower raw material costs compared to industry peers, thereby supporting the core profitability. Key factors affecting the overall cost structure include energy costs and revisions in the minimum wage rate. Despite these challenges, the non-core income from the bank deposits supplements the bottom line, resulting in PAT of PKR 115mln (FY25: PKR 702mln, FY24: PKR 675mln).
The Company underwent a massive debt restructuring in 2010. As a part of this exercise, the Company was required to divest its entire stake in Agritech Limited to secure subsidized rates and flexible repayment terms. As per the settlement, the Company was expected to receive approx. PKR 926mln to support its working capital; however, PKR 700mln remained stuck for several years, constraining operations. To alleviate this funding gap, a second restructuring was initiated in 2018. This plan involved the sale of non-core assets along with a right issue of PKR 365mln to settle outstanding liabilities. One manufacturing unit has been fully divested, with proceeds distributed to creditors. However, the sale deadline for the second unit has been extended till December 2025. Another key feature includes the conversion of PKR 5bln into interest-free, zero-coupon PPTFCs, the maturity of which lies in 2031. This will be settled through a bullet payment for which the Company has to create an annual reserve of PKR 710mln. Preference shares amounting to PKR 148mln were also restructured in 2024, with the dividend settled fully. The management remains fully committed, demonstrating strong financial discipline and ensuring the timely servicing of both principal and markup obligations. The Company also benefits from the SBP’s Export Refinance Scheme to support its working capital requirements, providing an advantage in financing costs. However, the pending debt obligations continue to strain the liquidity and debt coverage indicators. Despite these financial challenges, the Company has maintained optimal capacity utilization levels. On the strategic front, the management has invested in a 2.5 MW solar project, which is operational. Another 6 MW biomass project, funded entirely through equity, is nearing completion. This project is expected to become operational by the end of 1HFY26, with its financial impact materializing in the following quarters.
The ratings are dependent upon the Company’s ability to sustain financial performance, generate sufficient cash flows and meet its restructured debt obligations. Any deterioration in the financial risk profile of the Company will have a negative impact on the assigned ratings.

About the Entity
ANL operates as a public limited Company. It is listed on the Pakistan Stock Exchange. The Company's majority shareholding is held by Mr. Ahmed Humayun Shaikh (29.25%) and Jahangir Siddiqui & Co. Limited (24.96%), while the remaining stake rests with the other shareholders (45.79%).