May 24, 2019 (MLN): Pakistan Credit Rating Agency (PACRA) has maintained the entity ratings of Sapphire Fibres Limited at ‘A+’ for long-term and ‘A1’ for Short-term, with a ‘stable’ outlook forecast.
The ratings reflect Sapphire Fibres Limited’s (Sapphire Fibres) established business profile emanating from strong presence in the broader value-chain; enabling the company to manage volatility in the textile industry.
Business profile has improved since diversification into the denim segment in FY17, where optimal capacity utilization has led to strong revenue growth and improved margins.
During 9MFY19, currency devaluation led to significant growth in the Company's export-oriented top-line.
A sizable investment book (PKR ~12bln, 76% of equity) built over the years by deploying surplus funds augments the company’s profile and has generated a steady stream of recurring non-core income, supplementing its bottom-line in the past.
Recent economic conditions and volatility in the stock market diminished portfolio performance and ensuing income. Although the Company's investment portfolio comprises blue-chip stocks, rising interest cost and subdued performance of stock market is likely to put pressure on investment income.
Financial risk of the company is stretched in the absence of non-core income to support core debt coverages.
Free cashflows have shown significant improvement due to better performance in core operations. This provided relief to the risk profile of the company; sustainability of the same is important.
Ratings incorporate association of the company with well-established Sapphire Group.
The ratings are dependent on sustaining business profile of the company by maintaining profitability and margins achieved from core textile operations. At the same time, 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 prolonged downturn in capital markets.
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