Press Release

VIS Reaffirms Instrument and Entity Ratings of Sadaqat Limited

Karachi, December 19, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed instrument and entity ratings of Sadaqat Limited (‘SL’ or ‘the Company’) at ‘A’ (Single A) and ‘A/A2’ (Single A/A Two), respectively. Medium to long-term 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 ‘A2’ signifies good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on October 10, 2023.

Sadaqat Limited, an unlisted public limited company established in 1987, operates a vertically integrated textile business. Its operations include spinning, weaving, knitting, yarn dyeing, bleaching, dyeing, printing, stitching, and the export of value-added products, primarily home textiles and garments. The company’s head office and production facilities are located in Faisalabad. Ratings recognize commencement of spinning operations, achieving substantial production output and utilization, and increased production across all segments. Moreover, the Company has continued to limit its carbon footprint by eliminating reliance on fossil fuels through adoption of solar power for running production.

Ratings take into medium business risk profile of Pakistan’s textile sector, highly influenced by economic cyclicality and intense competition. While cotton production increased in FY24 compared to FY23, during the current fiscal year, as of Oct'24, cotton production remains significantly low, with a 59.4% decline, mainly due to reduced cultivation areas, rising costs, lack of subsidies, and climate challenges. For FY25, local cotton production is expected to remain grim. Despite this, textile exports grew in 1QFY25 due to cheaper imported cotton during the period and a focus on value-added products. Going forward, textile sector will remain exposed to global and local cotton market conditions, and FX risks which will impact the overall sector's profitability.

SL experienced 5% revenue growth in FY24 due to increased sales volumes and higher prices. While gross margin remained stable, higher financial charges reduced net profit. Despite a dip, debt coverages remained adequate. The liquidity matrix improved slightly with higher current ratio and net working capital. The improving trend in capitalization profile continued with decreasing gearing and debt leverage. The management anticipates uptick in profitability amid declining financing costs in the ongoing year.

The expected yield from recent backward integration initiatives is anticipated to enhance margins and strengthen the company’s operational performance.

Looking ahead, ratings will hinge on sustaining profit margins and improvement in gearing, debt coverage and liquidity metrics.

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

Rating the Issue
https://docs.vis.com.pk/docs/Rating-the-Issue-Aug-2023.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 .