Press Release

JCR-VIS Re-affirms Ratings of A /A-2 of Sapphire Textile Mills Limited

Karachi, October 27, 2006: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Sapphire Textile Mills Ltd. (STML) at A (Single A) for the medium to long-term and A-2 (A Two) for the short-term. The outlook on the medium to long-term rating is ‘Stable’.
The re-affirmation takes into account STML’s relatively strong capital structure along with the availability of a significant level of liquid investments to cushion any adverse shocks in the cyclical cotton spinning industry. The healthy financial position of STML emanates from a conservative capital expenditure policy consistently followed by management which is based on higher reliance on internal cash flows rather than external borrowings. The gross cash margin of the company in FY2006 was lower than the average of the previous five financial years, and coupled with the significant rise in interest rates has meant that net margins were severely constrained, with net profits being almost half of the five year average level. The management currently does not have any significant capital investment plans on hand and would be concentrating on optimizing results from the existing operations until the overall business environment for the textile sector improves.
While taking into account management’s efforts to diversify its risk through an increasing proportion of the fabric and home textile segments over the past three years, JCR-VIS believes that these segments have still not reached their true potential in contributing to the bottom line profitability of the company, which continues to be almost entirely dependent on the spinning operations. We understand that the management is now looking for further income sources through investment in a power project being set-up by the Sapphire Group. However, the quantum of investment to be made by STML in this project is yet to be determined and in any case this will not result in any significant contribution to the profitability in the short-term.
For further information on this rating announcement, please contact Mr. Safdar Kazi (Ext: 221) or Mr. Saad Ahmed Madani ( / ext: 219) at 5671822/5671833/5680996 or fax to 5681105/5671600.

Faheem Ahmad
President & CEO

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 2006 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