Key Takeaways:
• Management anticipates finance cost to reduce, in-line with declining interest rates.
• Company is expanding its Solar capacity to reduce energy cost; Current 8% of energy mix (Target 20%)
• Company is expected to shift to grid from gas power plant; no major difference in prices of grid & gas – Management believes.
• Export competitiveness of Textile sector to remain under pressure amid stable rupee dollar parity
Sapphire Fibres Limited reported a marginal 2% year-onyear (YoY) increase in net sales for FY24, reaching PKR 47,420 million compared to PKR 46,447 million in FY23.
However, 1QFY25 showed an extraordinary growth of 408% YoY, with net sales surging to PKR 13,133 million from PKR 2,586 million in 1QFY24.
Financial charges rose significantly by 40% YoY in FY24 to PKR 2,784 million due to higher interest rates or increased borrowing. The impact was more pronounced in 1QFY25, where financial charges surged by 657% YoY to PKR 477 million.
However, management believes that recent rate cuts will have a favorable impact for the company. Other income saw a remarkable increase of 92% YoY in FY24, reaching PKR 3,765 million, mainly from the investments made in capital market by the company.
Moreover, a major portion of this income is also supported by its power generation company “Sapphire Electric Limited”, which contributed PKR 1.7 billion in FY24.. The management highlighted that they try to source cheaper yarn, either from other sources or locally from its spinning unit.
Company exports knit directly. However, in denim fabric they also sell it to other stitching units. The company mentioned that their order book is quite improved now for knits. On the power side, the current power mix comprises 8% of solar, 88%-92% gas power plant and rest from grid.
However, company’s objective is to increase the solar share to 20% in the long-run. The company would also shift on grid, if gas supply is halted. The management believes that there is no major difference between the grid and the gas power plant, therefore there would be no unfavorable impact on the cost side.
Going forward, there’s cautious optimism about the improvement in the textile sector, however no major change expected. In the short-run due to lower profitability the impact of Normal tax regime has not been material, however as profitability increases, the impact will be highlighted. The company will keep on investing in its subsidiaries to diversify its income. Dividends from Sapphire Electric are expected to remain stable.
Important Disclosures
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