Lahore, June 28, 2019 (PPI-OT): Siddiqsons Limited, the flagship company of Siddiqsons group, is the pioneer of the denim industry in Pakistan. The company has managed to increase its top line, mainly from growth in local sales. The company’s top line is driven mainly by exports, with Bangladesh as the prime export location. However, the share of exports in top line is declining over the years due to high competition in the international market. The gross margins of the company remain under pressure, due to higher raw material prices. However other costs stayed under control as the company sustained its operating margins. The Pak rupee devaluation in the recent period is expected to have a positive impact on the exports front as it will increase the export competitiveness compared to regional peers.
The withdrawal of zero-rated status of textile industry in Finance Bill 2020 coupled with increasing interest rates may put pressure on margins and liquidity across the industry. Ratings draw comfort from income generated from the sizable strategic investments made by the company in banking, energy, real-estate, construction and metal industries. The company’s high inventory needs during cotton procurement season gave rise to increased working capital requirements. However, the company’s financial profile remains strong with low leveraged capital structure and strong coverages. Ratings reflect sponsors ability to provide support when required, as demonstrated in the past.
The ratings are dependent upon the management’s ability to capitalize on growth opportunities in a competitive landscape while also improving the margins. Sustainability of investment income remains important. Meanwhile, excessive borrowing, leading to higher leverage, and/or deterioration in coverages can impact the ratings negatively. A strong governance framework will be important, going forward.
For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com