Profile
Legal Structure
Siddiqsons
Limited (“the Company” or “SSL”) was incorporated in Pakistan on September 17,
1989 under the repealed Companies Ordinance, 1984 (now Companies Act, 2017).
Background
SSL
is a flagship Company of Siddiqsons group and is considered a pioneer of the
denim industry of Pakistan.
Operations
The
Company operates as a vertically integrated garment manufacturer unit, with
in-house processes encompassing the entire textile value chain- including
Spinning, Denim Fabric, Home Textiles, Garments and Knitwear. The Company
operates 32,198 spinning machines and 318 looms, enabling an annual production
capacity of 37.5 million meters of denim. Additionally, the Company has garment
manufacturing capabilities to produce up to 6.4 million pieces per year. The
Company’s energy requirement stood at 19MV, primarily met through K electric
and solar capacity. The registered office of the Company is located at 27th
at 27th floor Ocean Tower, Main Khayaban-E Iqbal Road Block 9
Clifton, Karachi.
Ownership
Ownership Structure
SSL
is a family-owned enterprise, with majority ownership held by the Tariq family.
Mr. Tariq Rafi holds a controlling interest with 62% of the shares, followed by
Mrs. Nighat Tariq, who owns 15%, and Mr. Abdur Rahim Tariq, who holds 12%. The
remaining shares are held by close family associates.
Stability
The
operations are governed by the second generation of the family. Mr. Abdur Rahim
Tariq, son of Mr. Tariq Rafi is the COO of the Company. However, the
establishment of a family constitution will augment the ownership profile of
the Company.
Business Acumen
The
directors and management of the Company bring substantial expertise and
extensive experience in the textile industry, having successfully managed the
Company for 38 years. Under their leadership, the Company remains committed to
its core philosophy of achieving sustainable growth while maintaining
operational excellence and industry best practices.
Financial Strength
SSL
is the flagship Company of the Siddiqsons group. The group has invested in
several other successful businesses in the banking, energy, real estate, and
metal industries. The sponsors have the capacity and provide timely financial
support to the Company when needed.
Governance
Board Structure
The
overall control of the board vests with the four-member board of directors.
There are no independent or non-executive directors on the board reflecting
room for improvement. Mr. Tariq Rafi is the Chairman and CEO while Mr. Abdul
Rahim is the COO of the Company.
Members’ Profile
Mr. Muhammad Tariq Rafi is the Chairman of
Siddiqsons Group and a sponsor director and Board of Directors member of MCB
Bank Limited. He has been awarded the coveted civil award of
Sitara-e-Imtiaz by the President of Pakistan in 2006 for his services to the
industry and trade.
Board Effectiveness
No
formal board committees are formed, instead, members convene informally and
frequently to discuss business development, and the Company's performance.
The establishment of sub-committees will augment the board's effectiveness.
Financial Transparency
Yousuf
Adil and Co. Chartered Accountants are the Company’s auditors. The auditor
issued a qualified opinion on the financials for FY24 due to the limitation of
scope on certain matters. This reflects negatively on the financial
transparency of the Company. The reason for the qualified opinion is that the
company has not recognized the gas infrastructure development cess (GIDC)
liability amounting to PKR 533.28mln from 2016 to 2020.
Management
Organizational Structure
The
Company has a well-defined organizational structure with a clear segregation of
responsibilities. The corporate office has three departments namely, i)
Finance, ii) Admin & HR, and iii) Imports & Exports. Manufacturing
segment has six departments namely, i) Marketing & Merchandising, ii)
Operations, iii) Quality Control, iv) Finance, v) HR, and vi) Compliance. Each
of these departments is headed by a GM who reports directly to the COO with the
exception of Finance GM, who reports directly to the CEO.
Management Team
Mr. Abdur Rahim (COO) has been associated with the Company
since 2007. He has vast experience in the Denim fabric and garments
industry and has extensively travelled to different
regions of the world for sales and marketing of Siddiqsons group. Furthermore, all functional departments are headed by seasoned
business professionals.
Effectiveness
The management teams of all operating units report
directly to the Director Technical, who, in turn, reports to the Chief Operating
Officer (COO). No Management committees are present and establishment will
enhance the Company’s management effectiveness.
MIS
The
Company’s operational framework is supported by a robust IT infrastructure,
anchored by SAP—one of the leading Enterprise Resource Planning (ERP) systems
globally. The implementation was carried out by ABACUS Consulting. The ERP
system is fully integrated across all key departments, facilitating
comprehensive financial and operational control.
Control Environment
The
Company implements customized controls at various levels for SAP. In addition,
rigorous quality checks are conducted at the manufacturing units. The denim
unit has a dedicated Quality Control lab that ensures quality at all stages of
production. The Company is accredited with several international certifications
including Better Cotton Initiative, Sedex Global Recycle Standard, etc,
reflecting well on control environment.
Business Risk
Industry Dynamics
The
textile exports of the country reached USD 16.7bln in FY24, a slight increase
from USD 16.5bln in the previous year, reflecting a growth of 0.93% YoY. The
highest contribution came from the composite and garments segment at USD
9.1bln, followed by the weaving segment at USD 6.5bln and the spinning segment
at USD 1.0bln. During 6MFY25, the textile exports stood at USD 9.1bln. In FY25,
the transition from the final tax regime to the normal tax regime is set to
impact the profitability matrix of export-oriented units, with a 29% tax on
profits and a super tax of up to 10%. The consistent decline in policy rates
over the last two quarters, along with the anticipation of further reductions,
is expected to provide a cushion in the financial metrics of the industry.
Relative Position
The Company has a spinning capacity of ~23.2mln kilograms per year,
~37.5mln meters of denim fabric, and ~6.4mln pieces of garments per year. It
is one of the largest garment manufacturers in Pakistan. The company has also
one of the most advanced manufacturing facilities in the country. Considering
this, the Company’s relative position is considered moderate.
Revenues
During
FY24, revenues recorded a growth of 19.6% YoY to stand at PKR 29,178mln (FY23:
PKR 24,378mln). The company’s share of export sales to total revenue inched up
to 95% (FY23: 92%) clocking in at PKR 28,440mln (FY23: PKR 22,354mln). The
sales mix of the company is tilted toward export sales. The weaving segment continued to serve as the
primary revenue contributor, followed by the garments division. The Company
maintains a geographically diversified, export-driven revenue base, with major
export destinations including the United States, Bangladesh, Turkey, and
various European countries.
Margins
During
FY24, the gross margin of the company declined to stand at 15.4% (FY23: 23.6%).
This translated into an dip in operating margin of 6.7% (FY23: 15.5%). The net
margin experienced decline as well to -0.6% (FY23: 7.8%), as the Company has
recorded a net loss of PKR 188mln (FY23: PKR 1,911mln). The rating team
apprised to RC that the decline in net profitability is attributable to loss on
associated company and the provision recorded after selling off the investment
in related party.
Sustainability
The
Company has maintained an investment portfolio in real estate and blue-chip
companies in the stock exchange to generate steady investment income, mainly in
dividends and rental income, to augment their liquidity profile and supplement
the Company's bottom line. Over the years Siddiqsons has executed CAPEX
for BMR to improve manufacturing facility efficiency resulting in an increase
of operating fixed assets to PKR 12.1bln.
Financial Risk
Working capital
At
end-Jun24, the net working capital cycle days de to 128 days (end-Jun23: 133
days) on account of lower inventory days at 107 days (end-Jun23: 110days). The
trade assets of the company marginally remained the same to stand at PKR
13,989mln (end-Jun23: PKR 13,927mln) on account of increased inventory at PKR
9,529mln (end-Jun23: PKR 7,626mln), resulting in lesser room-to-borrow at PKR
2,844mln (end-Jun23: PKR 3,723mln;).
Coverages
During
FY24, the Company’s FCFO clocked at PKR 2,849mln (FY23: PKR 3,990mln) on the
back of declining profitability. The prolonged high policy rate led to higher
finance costs, clocking in at PKR 2,327mln (FY23: PKR 1,562mln). The interest
coverage of the company declined to 3.0x (FY22: 3.6x) due to a higher finance
cost. The debt coverage increased to 1.4x (FY23: 3.0x).
Capitalization
At
the end-Jun24, leveraging of the Company increased to 38.8% (end-Jun24: 45.1%)
owing to a higher increase in the equity of the company, clocking in at PKR
19,225mln (end-Jun24: 15,181mln). Whereas, the borrowings of the Company
largely remained the stable and stood at PKR 11,999mln (end-Jun24: PKR
12,027mln).
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