The Pakistan Credit Rating Agency Limited
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Muhammad Fahad Iqbal

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PACRA Maintains Entity Ratings of Sapphire Fibres Limited

Rating Type Entity
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect Sapphire Fibres Limited’s (Sapphire Fibres) established business profile emanating from a strong presence in the broader value-chain; enabling the Company to manage volatility in the textile industry. To one side from producing a range of finer quality yarn, the Company is also engaged in dyeing, knitting, stitching, and manufacturing of denim fabric. The business profile has improved on the back of the established denim weaving segment. Continuous BMR activities have led to significant growth in operations in recent years. During FY21, Company’s gross and net margins both improved on the back of enhanced core income and dividend. A sizable investment book (PKR 11.5bln, 60.8% of equity) built over the years by deploying surplus funds augments the Company’s profile. During CY21, escalated domestic demand and rising exports resulted in improved revenues. The demand for exports has surged after Dec’20 and the Company capitalized on it. The exports increased by PKR 3.6bln YoY to clock in at PKR 22.2bln. Strong core operations have led to continued improvement in profitability. Dividend income comprises 46.4% of the Company’s bottom-line in FY21. The financial risk of the Company has recently improved due to higher cashflows and low finance cost. Company bounced back in FY21 and the coverages improved due to a reduction in finance cost. Free cashflows have shown significant improvement due to better performance in core operations, reflected in improved coverages in FY21 after being stagnant in FY20. Core coverage only improved marginally attributable to higher quantum of CMLTD. The expected continuity of the dividend stream from Sapphire Electric will further supplement the bottom-line and coverages. Ratings incorporate association of the company with well-established Sapphire Group which enjoys distinguishing presence in several sectors.
The ratings are dependent on sustaining the business profile of the Company by maintaining profitability and margins achieved from core textile operations. At the same time, the sustainability of non-core income and prudent management of the surplus funds are important. Sustainability of coverages would remain critical to avoid any drag on financial profile due to a prolonged downturn in capital markets.

About the Entity
Sapphire Fibres Limited - listed on Pakistan Stock Exchange - commenced operations in 1979. Sapphire Fibres is a vertically integrated composite textile unit, manufacturing specialized cotton yarn, fabric and garments. The Company operates with 102,336 spindles. The Company has made separate business units for its business which includes (i) Spinning, (ii) Weaving, (iii) Knitting, iv) Dyeing and (v) Garments; each is profit centre. Sapphire Fibres is the flagship company of Sapphire Group, which collectively owns the majority (~85%) stake in the Company; directly through individuals (~33%) and group companies (~52%). The remaining (~15%) stake is well spread among institutions and the general public. Sapphire Fibres has interests in the textile, power and cement sectors.
Overall control vests with eight-member BoD, dominated by the sponsor family: five family members, including CEO, two independent directors and one non-executive. Mr Amer Abdullah has ceased to be the Chairman of the Board as of September 23rd, 2021, and Mr Hassan Abdullah has been appointed as a chairman of the board. The CEO, Mr Shahid Abdullah, belonging to the sponsor family, is a business magnate and oversees the company affairs. He is assisted by a professional and experienced management team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.