Press Release

JCR-VIS Reaffirms Entity Ratings of Sadaqat Limited

Karachi, February 23, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Sadaqat Limited (SL) at ‘A/A-2’ (Single A/A-Two). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on December 27, 2016.

The ratings assigned to (SL take into account its prominent position in the value added niche and home textile. The ratings also incorporate the Company’s largely maintained financial risk profile. While client-wise concentration remained high, the Company’s long-term association with internationally renowned brands and its ability to add new clients on an ongoing basis mitigate the associated risk to a certain extent.

Net revenue decreased slightly during FY17 mainly due to change in accounting policy regarding recognition of sales. Revenue represented mostly export sales with a negligible portion of local sales. Given lower revenue, higher depreciation charge due to significant additions to fixed assets and some additional provisions in cost of sales, gross margin stood lower during FY17. Finance cost decreased mainly on the back of low cost borrowing under central bank’s special export program. With lower gross profit margin and slight increase in operating expenses, the net profit also declined during FY17. With additional CAPEX primarily for improving operational efficiencies and effective marketing, the Company posted considerable increase in sales during 1HFY18.

Funds from Operations (FFO), though decreased in FY17, remained comfortable. Given relatively lower FFO and higher level of borrowings, FFO to total debt also decreased. Moreover, the Company consistently maintains healthy debt service coverage ratio. Going forward, coverages are projected to remain at comfortable levels. The CAPEX during the upcoming financial year is planned for processing and circular knitting project which shall be funded through a combination of equity and debt. With considerable increase in equity base, debt leverage is projected to decline, going forward.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.

Jamal Abbas

Applicable Rating Criterion: Industrial Corporate (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-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. JCR-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. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-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 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited