Press Release

VIS Reaffirms Entity Rating of Sapphire Textile Mills Limited

Karachi, October 07, 2024: VIS Credit Rating Company Limited (VIS) reaffirms the entity ratings of Sapphire Textile Mills Limited at ‘A+/A-1’ (Single A Plus/A-One). Long-term entity rating of ‘A+’ reflects good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-1’ strong likelihood of timely repayment of short-term obligations with excellent liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on September 13, 2023.

Established in 1969 as a modest spinning venture, Sapphire Textile Mills Limited (‘STML’ or ‘the Company’) has since evolved into a Pakistan's top vertically integrated textile players and exporters. Involved in yarn, fabric, and home textile production, STML's operations cover spinning, weaving, dyeing, printing, processing, and stitching. Boasting various international certifications and export standards, the Company has a global footprint with affiliates and key business partnerships in various countries. The company has elaborate production infrastructure based in Sindh and Punjab, backed by a workforce of 10,000+ employees.

Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition. The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors. Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and liquidity constraints due to lengthy process of sales tax refunds. Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.

Assigned ratings take into account the Company’s business updates reflecting increase in sales revenues in FY23 mainly due to increase in effective prices. However, the gross margin declined in FY23 due to elevated raw material costs and a hike in fuel and power cost though recovered slightly during 9MFY24. Similarly, the net margin remained under pressure due to increased finance costs during the review period. Looking ahead, the Company anticipates an increase in revenue, driven by recovery in product demand, with margins expected to remain intact.

The assigned ratings also take into account the Company's financial risk profile. The Company showcases a healthy liquidity profile and a healthy Debt Service Coverage ratio. As of March’24, the Company's equity base increased due to profit retention leading to an improved capitalization profile. Going forward, maintenance of satisfactory capitalization profile will remain an important rating driver.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.


Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .