Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Sapphire Textile Mills Limited at ‘A+/A-1’, indicating good credit quality with strong liquidity factors and a stable outlook. The long-term rating reflects an adequate protection factor, while the short-term rating highlights a strong likelihood of timely financial obligations. This rating action follows the previous evaluation announced on September 13, 2023.
According to VIS Credit Rating Company Limited announcement issued on 07 October 2024, Sapphire Textile Mills Limited, established in 1969, has grown from a modest spinning operation into one of Pakistan’s leading vertically integrated textile entities. The company is involved in yarn, fabric, and home textile production with extensive operations across spinning, weaving, dyeing, printing, processing, and stitching. It employs over 10,000 people and has a significant international presence with a network of affiliates and business partnerships across various countries.
The ratings reflect the medium business risk associated with the textile sector in Pakistan, which is vulnerable to economic cyclicality and intense competition. The sector’s performance is heavily influenced by global economic conditions, geopolitical challenges, and local factors like cotton production and reliance on imported raw materials, which present substantial exchange rate risks.
The company’s financial performance in FY23 showed an increase in sales revenue primarily due to higher effective prices, although gross margins faced pressures from rising raw material costs and increased fuel and power expenses. Despite these challenges, the company managed a slight recovery in gross margin during the first nine months of FY24. The net margin has been under pressure from rising finance costs, but future projections remain optimistic with expected revenue growth and stable margins.
The reaffirmed ratings also consider the company’s strong financial risk profile, highlighted by a healthy liquidity profile and robust debt service coverage. As of March 2024, the company’s equity base has strengthened due to profit retention, contributing to an improved capitalization profile which will continue to be a critical factor in future rating assessments.