PACRA Maintains A+ Rating for Sapphire Fibres Limited.

Karachi: PACRA has announced that it will maintain the A+ long-term and A1 short-term entity ratings for Sapphire Fibres Limited (SFL), citing the company’s stable outlook. The decision highlights the company’s robust standing within the Sapphire Group, a well-known textile conglomerate in Pakistan.

According to Pakistan Credit Rating Agency Limited, the ratings reflect the significant profile of Sapphire Fibres Limited, a key venture in the group’s diverse business portfolio that spans sectors such as power generation, dairy, and retail. SFL operates as a vertically integrated unit, utilizing advanced production technologies across its spinning, denim fabrics, knitted fabrics, and garment divisions. The company has also diversified income streams beyond textiles by investing in the power sector and building an equity investment portfolio. As part of its diversification strategy, SFL is acquiring a 50% share in UCH Power (Private) Limited and UCH-II Power (Private) Limited.

With approximately 81% of revenue derived from exports, SFL reported a slight increase in revenue growth for FY24, reaching PKR 47.4 billion, up from PKR 46.4 billion in FY23. This growth was mainly due to modest improvements in product pricing. The spinning segment was the top performer, contributing PKR 28.6 billion to the company’s revenue, followed by PKR 12.3 billion from denim and PKR 6.4 billion from knits. Despite a downturn in the knitting segment due to reduced international demand, the company is optimistic about a recovery, citing recent increases in order volumes.

SFL’s clientele includes established entities across Asia and European markets. However, the company’s gross margins were diluted due to strategic procurement of imported raw cotton aimed at enhancing product quality and optimizing the supply chain. Rising energy costs, labor expenses, and finance costs are ongoing challenges faced by the textile industry. Nevertheless, SFL maintains a low-leverage capital structure and is supported by a well-managed working capital, which supplements its financial risk profile. The company’s funding strategy includes short-term equity investments that enhance liquidity and profitability through dividend income.

PACRA emphasizes that the ratings depend on improved profitability through diversified business ventures and prudent management of the investment portfolio. The sustainability of cash flow generation and stable operations remain critical for maintaining the assigned ratings.

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