November 25, 2019 (PPI-OT)

Following is the text of press release issued by The Pakistan Credit Rating Agency Limited (PACRA)

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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 where optimal capacity utilization has led to strong revenue growth and improved margins. During FY19, currency devaluation led to significant growth in the Company's export-oriented topline. A sizable investment book (~PKR 11bln, ~73% of equity) built over the years by deploying surplus funds augments the Company's profile. Dividend income from subsidiary - Sapphire Electric - which contributed significantly to profitability in the past, has been impeded due to liquidity issues in the power sector.

Meanwhile, recent economic conditions and volatility in the stock market diminished trading portfolio performance and ensuing income, despite investment in blue-chip stocks. However, strong core operations have led to continued improvement in profitability. 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, reflected in improved coverages. Expected continuity of dividend stream from Sapphire Electric will further supplement the bottomline and coverages. 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.

For more information, contact:AnalystThe Pakistan Credit Rating Agency Limited (PACRA)Awami Complex, FB1, Usman Block New Garden Town,Lahore - PakistanTel: +9242 586 9504 -6Fax: +9242 583 0425Email: hammad.rashid@pacra.comWeb: www.pacra.com

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