Lahore, November 24, 2021 (PPI-OT):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.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com