The Pakistan Credit Rating Agency Limited

Rating Report
Report Contents
1. Rating Analysis
Beacon Impex (Pvt.) Limited 2. Financial Information
3. Rating Scale
4. Regulatory and Supplementary Disclosure

Rating History
Dissemination Date Long Term Rating Short Term Rating Outlook Action Rating Watch
05-Jun-2024 A A1 Stable Initial -

Rating Rationale and Key Rating Drivers

The assigned rating of Beacon Impex Pvt. Limited (“the Company” or “BIPL”) emanates from the prominent profile of the
Company in the textile industry of Pakistan and cementing its reputation as a trailblazer under the category of dedicated
bodywear segment. BIPL is a full vertically integrated textile Knitwear Company and possesses in-house facilities for the textile
product value chain which includes spinning, Knitting, Elastic, Dyeing/processing, Cutting & Garments. The Company has the
latest state-of-the-art machinery and manufacturing facility meeting high-end international standards with 100% textile value
chain process automation and a congenial labour working environment. The Company has built an automated and centrally-
integrated KPIs-based assessment dashboard system to analyze real-time facility performance and address process inefficiencies.
The execution of RFID and barcode-based backtrack systems has enabled the Company to access final product traceability via a
single scan which escalates the control environment of the Company. The product slate of the Company primarily vested in
bodywear garments followed by the sale of fabric, denim and yarn. The top line of the Company has shown a compound annual
growth of 28% during three years and stood at PKR 29.4bln as of FY23 (6MFY24: PKR 17.8bln) mainly dominated by exports
of garments. The import substitution of elastic via in-house manufacturing is considered a game-changer for BIPL as it creates a
cushion in the cost of production and supplements in terms of price competitiveness. However, price inflation on local raw
cotton, soaring energy costs/ operating expenses and elevated finance costs have slightly impacted the margins and profitability
matrix of the Company over the years. The clientele of BIPL is embraced by established entities located across various export
destinations worldwide, predominately in the European market which has augmented the business sustainability as management
of the Company is mindful to keep align their financial performance with financial projections. The execution of CAPEX for
solar installation is under consideration to manage energy cost risk. The Company has a sponsor-dominated board with adequate
size and board members possess considerable industry-specific exposure and act more in an execution role supported by a team
of seasoned and professional management. The Financial risk profile of the Company is considered good with optimal working
capital management. The cash flows of the Company are viewed as sufficient as the working capital requirements are met
through an optimal mix of internally generated cash flows and short-term borrowings. The coverages of the Company are
considered comfortable with a leveraged capital structure.

The ratings are dependent on the Company's ability to sustain its business profile while maintaining its profitability matrix at an
optimal level. The sustainability of margins and improvement in coverages while expanding business volumes remain critical.
The compliance with corporate governance will be further strengthened by the inclusion of an independent oversight function.
Adherence to the debt matrix at a moderate level is a prerequisite for assigned ratings

Disclosure
Name of Rated Entity Beacon Impex (Pvt.) Limited
Type of Relationship Solicited
Purpose of the Rating Entity Rating
Applicable Criteria Methodology | Corporate Rating(Jul-23),Methodology | Correlation Between Long-term & Short-term Rating
Scales(Jul-23),Methodology | Rating Modifiers(Apr-24)
Related Research Sector Study | Composite and Garments(Dec-23)
Rating Analysts Muhammad Harris Ghaffar | [email protected] | +92-42-35869504

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 Composite and Garments
The Pakistan Credit Rating Agency Limited
Profile

Legal Structure Beacon Impex (Pvt.) limited (“The Company”) was incorporated in Pakistan as a private limited company on December 2nd, 2005 under the Companies
Ordinance 1984 (Repealed with the enactment of the Companies Act, 2017). The principal business activity of the Company is the manufacturing and sales of garments,
yarn, and denim products. The registered office of the Company is situated at P-102 Jail Road, Faisalabad.
Background Beacon Impex (Pvt.) Limited was incorporated in 2005 as an IT service-providing corporation. and has developed itself into a growing vertically integrated
unit by setting up conversion and doubling units in 2012 and eventually entered in the garment export business in 2018.
Operations The company's operations are divided into five divisions; Yarn, Elastic, Fabric, Denim, and Apparel. The Company has established a strong presence in the
dedicated bodywear industry over approximately one decade, producing around 6 million garments each month.
Ownership

Ownership Structure The company’s shareholding vests with the Company's CEO, Mr. Muhammad Shakeel Faridi, the director Mr. Mudassar Zafar, and other sponsors.
Stability The sponsors have a long-term association with the Company and the textile business. The next generation is also engaged in business (Mr. Muhammad Nazir
Ahmed) and formal documented succession planning will provide comfort to the stability in ownership.
Business Acumen Mr. Muhammad Nazir Ahmed is considered a man of the last mile. The vision and strategy matrix of the Company lies in his execution role.
Financial Strength The financial strength of the Company primarily divests in a single line of business, a dedicated bodywear segment.
Governance

Board Structure Beacon Impex’s BoD consists of two members, both occupy executive roles – including the CEO, Mr. Muhammad Shakeel Faridi while Mr. Mudassar
Zafar is designated as director. Both directors have more than 20 years of relevant experience and have been associated with the company for the last 10 years.
Members’ Profile Mr. Shakeel Faridi- The CEO holds a master's degree in computer sciences. The board members carry vast knowledge and extensive experiences in the
textile industry,
Board Effectiveness Five committees, operational planning and coordination committee, Business development committee, corporate social responsibility committee,
financial planning and compliance committee, and human resource committee are in place to assist the board in relevant matters and ensure proper oversight.
Financial Transparency Kreston Hyder Bhimji & Co. who are listed as category “A” on the SBP’s panel of auditors are external auditors of the Company. They have
expressed an unqualified opinion on the financial statements of the Company for the year ended June 30, 2023.
Management

Organizational Structure The Company has a well-defined reporting line to ensure smooth operations and excellence. The Company's organizational structure is broadly
divided into six functional departments: (i) Marketing, (ii) Finance, (iii) Information Technology, (iv) Human Resource & Administration, (v) Production, and (vi)
Internal Audit.
Management Team The management team is headed by the CEO. He is supported by a team of seasoned professionals, who supplement his expertise. Mr. Mudassar is
the Executive Director. He has been associated with the Company since 2013, he is well-versed in the textile business and has strong business acumen
Effectiveness The management meetings are held periodically with the follow-up points to resolve or proactively address operational and administrative issues, if any,
eventually ensuring a smooth flow of operations.
MIS The Company has developed an in-house state-of-the-art integrated ERP system which is designed in Oracle 6i enabling it to efficiently monitor and control
production, inventory, and quality levels.
Control Environment The Company has built an automated and centrally-integrated KPIs-based assessment dashboard system to analyze real-time facility performance
and address process inefficiencies. The execution of RFID and barcode-based backtrack systems has enabled the Company to access final product traceability via a single
scan which escalates the control environment of the Company. The Company has an in-house internal audit department with quarterly reporting frequency and it is
directly reportable to the audit committee.
Business Risk

Industry Dynamics The size of the textile industry in Pakistan is estimated to be PKR 2.62Trn (LSM) ~3.0% of the total GDP as of FY23. The composite & garment
segment in the textile sector has a contribution of ~ PKR 1.6Trn mainly dominated by knitwear, readymade garments, bedwear, and towels followed by PKR 775bln from
spinning and PKR 637bln from weaving. The escalation in energy tariffs & finance costs, PKR devaluation, and ensuring the availability of optimum quality raw
materials are prime challenges specific to the industry
Relative Position The Company has established its footprints in the dedicated bodywear industry over a time of ~01 decade. The Company has produced ~6 million
garments per month.
Revenues During FY23, the company’s revenue base witnessed sizeable growth and stood at PKR 29.4bln (FY22: PKR 20.2bln) & PKR 17.8bln in 6MFY24. The
company’s revenue base is dominated by the direct export sales of bodywear garments. The company has a wide range of customers including Puma, Levis, Amazon, and
Hugo Boss. Region-wise, the sales are mainly dominated by Europe, followed by North America, Asia and others.
Margins During FY23, the gross profit margin of the Company remained stagnant and stood at 23.8% (FY22: 23.8%) & 21.8% in 6MFY24, dipping slightly mainly on
the back of the elevation in local raw cotton prices after June-23 and the surge in energy tariffs. While the operating margin witnessed a slight uptick to stand at 18.1%
(FY22: 17.2%). The finance cost of the company surged to PKR 923mln (FY22: PKR 245mln). Consequently, the company’s net margin stood at 12.4% in FY23 (FY22:
13.4%) & 10.1% in 6MFY24, impacted by finance costs over time.
Sustainability The management of the Company is mindful to keep aligning their performance with the financial projections. The Company has consistently undergone
CAPEX from 2019 to 2024 in all textile product value chains. The majority of the CAPEX is executed in the processing segment, followed by garments, spinning, PET
polyester, Knitting, & elastic.
Financial Risk

Working Capital The inventory days stood at 47 days as of 6MFY24 (FY23: 42 days) owing to the procurement of cotton while finished inventory levels remained high
to cater to international orders and local retail demand. As of 6MFY24, the net working capital days stood at 61 days. (FY23: 62 days). The Company has efficiently
managed its working capital cycle. The Company’s short-term trade leverage stood at 28.9% as of FY23. The working capital requirements were met through short-term
borrowings and internally generated cashflows.
Coverages During FY23, free cash flow from operations (FCFO) displayed a rise to PKR 5.5bln (FY22: PKR 3.6bln). During FY23, the interest coverage clocked to 6.7x
(FY22: 20.4x) and debt coverage stood to 3.6x (FY22: 5.2x). The company's FCFO clocked at PKR 3,170mln during 6MFY24, keeping the interest coverage and debt
coverage ratio at 4.2x and 2.6x respectively.
Capitalization The company has a leveraged capital structure (FY23: 42.1%, FY22: 38.4%). Out of the total debt, 50% (FY22: 59%) of the debt comprises short-term
borrowings. The short-term borrowings of the Company stood at PKR 5.1bln and long-term borrowings PKR 4.1bln during 6MFY24. Long-term borrowings are
predominantly LTFF-based. The equity base of the Company recorded good growth to PKR 12.1bln as of FY23 (FY22: PKR 8.4bln) & PKR 13.9bln in 6MFY24. Over
the years, the company's leverage increased slightly and stood at 42.2% during 6MFY24.

Beacon Impex (Pvt.) Limited Jun-24

Rating Report www.PACRA.com
 0 0 0 Financial Summary
0 0 0 PKR mln
Financial Summary
The Pakistan Credit Rating Agency Limited PKR mln
Beacon Impex (Pvt.) Limited Dec-23 Jun-23 Jun-22 Jun-21
Composite and Garments 6M 12M 12M 12M

A BALANCE SHEET
1 Non-Current Assets 16,199 13,035 8,901 6,313
2 Investments 149 148 300 154
3 Related Party Exposure 140 118 82 290
4 Current Assets 13,678 14,392 9,291 6,562
a Inventories 4,710 4,412 2,388 1,570
b Trade Receivables 4,701 5,719 4,130 2,952
5 Total Assets 30,165 27,693 18,575 13,319
6 Current Liabilities 5,380 6,136 4,367 3,898
a Trade Payables 3,499 4,050 2,671 2,086
7 Borrowings 10,161 8,813 5,290 3,951
8 Related Party Exposure - - - -
9 Non-Current Liabilities 684 612 443 208
10 Net Assets 13,940 12,133 8,476 5,262
11 Shareholders' Equity 13,940 12,133 8,476 5,261

B INCOME STATEMENT
1 Sales 17,864 29,413 20,200 11,902
a Cost of Good Sold (13,966) (22,422) (15,402) (8,255)
2 Gross Profit 3,898 6,991 4,798 3,647
a Operating Expenses (1,037) (1,669) (1,316) (1,553)
3 Operating Profit 2,862 5,321 3,482 2,093
a Non Operating Income or (Expense) 67 (309) (225) (62)
4 Profit or (Loss) before Interest and Tax 2,928 5,013 3,258 2,031
a Total Finance Cost (851) (923) (245) (159)
b Taxation (270) (449) (300) (146)
6 Net Income Or (Loss) 1,807 3,641 2,712 1,726

C CASH FLOW STATEMENT

a Free Cash Flows from Operations (FCFO) 3,170 5,517 3,605 2,087
b Net Cash from Operating Activities before Working Capital 2,437 4,857 3,411 1,950
c Changes in Working Capital (45) (3,452) (2,291) (474)
1 Net Cash provided by Operating Activities 2,392 1,405 1,120 1,476
2 Net Cash (Used in) or Available From Investing Activities (3,528) (4,472) (2,979) (3,237)
3 Net Cash (Used in) or Available From Financing Activities 1,218 3,154 1,879 1,715
4 Net Cash generated or (Used) during the period 82 88 20 (46)

D RATIO ANALYSIS
1 Performance
a Sales Growth (for the period) 21.5% 45.6% 69.7% --
b Gross Profit Margin 21.8% 23.8% 23.8% 30.6%
c Net Profit Margin 10.1% 12.4% 13.4% 14.5%
d Cash Conversion Efficiency (FCFO adjusted for Working Ca 17.5% 7.0% 6.5% 13.6%
e Return on Equity [ Net Profit Margin * Asset Turnover * (To 27.7% 35.3% 39.5% 32.8%
2 Working Capital Management
a Gross Working Capital (Average Days) 100 103 113 N/A
b Net Working Capital (Average Days) 61 62 70 27
c Current Ratio (Current Assets / Current Liabilities) 2.5 2.3 2.1 1.7
3 Coverages
a EBITDA / Finance Cost 4.5 7.4 22.2 17.5
b FCFO / Finance Cost+CMLTB+Excess STB 2.6 3.6 5.2 3.9
c Debt Payback (Total Borrowings+Excess STB) / (FCFO-Fin 1.0 0.9 0.6 0.8
4 Capital Structure
a Total Borrowings / (Total Borrowings+Shareholders' Equity 42.2% 42.1% 38.4% 42.9%
b Interest or Markup Payable (Days) 76.6 109.1 103.6 63.7
c Entity Average Borrowing Rate 16.1% 11.7% 3.8% 3.3%
 Corporate Rating Criteria
Qualitative Considerations
Criteria – Cross-Sector Qualitative Rating Considerations
Methodology – Asset Manager Rating
Scale
Criteria – Cross-Sector Qualitative Rating Considerations
Methodology – Asset Manager Rating
Cross-Sector Rating
Scale – Credit Rating

Credit Rating
Credit rating reflects forward-looking opinion on credit worthiness of underlying entity or instrument; more specifically it covers relative ability to honor
financial obligations. The primary factor being captured on the rating scale is relative likelihood of default.

Long-term Rating Short-term Rating

Scale Definition Scale Definition
A1+ The highest capacity for timely repayment.
Highest credit quality. Lowest expectation of credit risk. Indicate exceptionally strong
AAA A strong capacity for timely
capacity for timely payment of financial commitments A1
repayment.
AA+ A satisfactory capacity for timely
Very high credit quality. Very low expectation of credit risk. Indicate very strong repayment. This may be susceptible to
AA A2
capacity for timely payment of financial commitments. This capacity is not significantly adverse changes in business,
vulnerable to foreseeable events. economic, or financial conditions.
AA- An adequate capacity for timely repayment.
A3 Such capacity is susceptible to adverse
A+ changes in business, economic, or financial
High credit quality. Low expectation of credit risk. The capacity for timely payment of The capacity for timely repayment is more
A financial commitments is considered strong. This capacity may, nevertheless, be susceptible to adverse changes in business,
vulnerable to changes in circumstances or in economic conditions. A4
economic, or financial conditions. Liquidity
A- may not be sufficient.
BBB+ Short-term Rating
Good credit quality. Currently a low expectation of credit risk. The capacity for timely A1+ A1 A2 A3 A4
BBB payment of financial commitments is considered adequate, but adverse changes in AAA
circumstances and in economic conditions are more likely to impair this capacity. AA+
BBB- AA
BB+ AA-
Moderate risk. Possibility of credit risk developing. There is a possibility of credit risk
A+
developing, particularly as a result of adverse economic or business changes over time;
BB A
however, business or financial alternatives may be available to allow financial

Long-term Rating
commitments to be met. A-
BB- BBB+
B+ BBB
High credit risk. A limited margin of safety remains against credit risk. Financial BBB-
B commitments are currently being met; however, capacity for continued payment is BB+
contingent upon a sustained, favorable business and economic environment. BB
B- BB-
CCC B+
Very high credit risk. Substantial credit risk “CCC” Default is a real possibility.
B
Capacity for meeting financial commitments is solely reliant upon sustained, favorable
CC B-
business or economic developments. “CC” Rating indicates that default of some kind
CCC
appears probable. “C” Ratings signal imminent default.
C CC
C
D Obligations are currently in default. *The correlation shown is indicative and, in certain
cases, may not hold.

Outlook (Stable, Positive, Rating Watch Alerts to the Suspension It is not Withdrawn A rating is Harmonization A
Negative, Developing) Indicates possibility of a rating change possible to update an withdrawn on a) change in rating due to
the potential and direction of a subsequent to, or, in opinion due to lack termination of rating revision in applicable
rating over the intermediate term in anticipation of some material of requisite mandate, b) the debt methodology or
response to trends in economic identifiable event with information. Opinion instrument is underlying scale.
and/or fundamental indeterminable rating should be resumed in redeemed, c) the rating
business/financial conditions. It is implications. But it does not foreseeable future. remains suspended for
not necessarily a precursor to a mean that a rating change is However, if this six months, d) the
rating change. ‘Stable’ outlook inevitable. A watch should be does not happen entity/issuer defaults.,
means a rating is not likely to resolved within foreseeable within six (6) or/and e) PACRA finds
change. ‘Positive’ means it may be future, but may continue if months, the rating it impractical to surveill
raised. ‘Negative’ means it may be underlying circumstances are should be considered the opinion due to lack
lowered. Where the trends have not settled. Rating watch may withdrawn. of requisite
conflicting elements, the outlook accompany rating outlook of information.
may be described as ‘Developing’. the respective opinion.

Surveillance. Surveillance on a publicly disseminated rating opinion is carried out on an ongoing basis till it is formally suspended or withdrawn. A
comprehensive surveillance of rating opinion is carried out at least once every six months. However, a rating opinion may be reviewed in the
intervening period if it is necessitated by any material happening.

Note. This scale is applicable to the following methodology(s): a) Broker Entity Rating e) Holding Company Rating
b) Corporate Rating f) Independent Power Producer Rating
c) Debt Instrument Rating g) Microfinance Institution Rating
d) Financial Institution Rating h) Non-Banking Finance Companies Rating

Disclaimer: PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but
its accuracy or completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulting from any error
in such information. Contents of PACRA documents may be used, with due care and in the right context, with credit to PACRA. Our reports and
ratings constitute opinions, not recommendations to buy or to sell.
 Regulatory and Supplementary Disclosure
(Credit Rating Companies Regulations,2016)

Rating Team Statements

(1) Rating is just an opinion about the creditworthiness of the entity and does not constitute recommendation to buy, hold or sell any security of the
entity rated or to buy, hold or sell the security rated, as the case may be | Chapter III; 14-3-(x)

2) Conflict of Interest
i. The Rating Team or any of their family members have no interest in this rating | Chapter III; 12-2-(j)
ii. PACRA, the analysts involved in the rating process and members of its rating committee, and their family members, do not have any conflict of
interest relating to the rating done by them | Chapter III; 12-2-(e) & (k)
iii. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)] Explanation: for the purpose of above clause,
the term “family members” shall include only those family members who are dependent on the analyst and members of the rating committee

Restrictions
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where required under law to do so. | Chapter III; 10-(5)
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during business relationship with the customer | Chapter III; 10-7-(d)
(5) PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of entity subject to
rating | Chapter III; 10-7-(k)

Conduct of Business
(6) PACRA fulfills its obligations in a fair, efficient, transparent and ethical manner and renders high standards of services in performing its functions
and obligations; | Chapter III; 11-A-(a)
(7) PACRA uses due care in preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable but its
accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verifies or validates information received in the rating
process or in preparing this Rating Report | Clause 11-(A)(p).
(8) PACRA prohibits its employees and analysts from soliciting money, gifts or favors from anyone with whom PACRA conducts business | Chapter III;
11-A-(q)
(9) PACRA ensures before commencement of the rating process that an analyst or employee has not had a recent employment or other significant
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(10) PACRA maintains principal of integrity in seeking rating business | Chapter III; 11-A-(u)
(11) PACRA promptly investigates, in the event of a misconduct or a breach of the policies, procedures and controls, and takes appropriate steps to
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Independence & Conflict of interest

(12) PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has
no influence on PACRA´s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity and
independence of its ratings. Our relationship is governed by two distinct mandates i) rating mandate - signed with the entity being rated or issuer of the
debt instrument, and fee mandate - signed with the payer, which can be different from the entity
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and associated undertakings that is being rated or has been rated by it during the preceding three years unless it has adequate mechanism in place
ensuring that provision of such services does not lead to a conflict of interest situation with its rating activities; | Chapter III; 12-2-(d)
(14) PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly
10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA; |
Reference Chapter III; 12-2-(f)
(15) PACRA ensures that the rating assigned to an entity or instrument is not be affected by the existence of a business relationship between PACRA and
the entity or any other party, or the non-existence of such a relationship | Chapter III; 12-2-(i)
(16) PACRA ensures that the analysts or any of their family members shall not buy or sell or engage in any transaction in any security which falls in the
analyst’s area of primary analytical responsibility. This clause shall, however, not be applicable on investment in securities through collective
investment schemes. | Chapter III; 12-2-(l)
(17) PACRA has established policies and procedure governing investments and trading in securities by its employees and for monitoring the same to
prevent insider trading, market manipulation or any other market abuse | Chapter III; 11-B-(g)

Monitoring and review

(18) PACRA monitors all the outstanding ratings continuously and any potential change therein due to any event associated with the issuer, the security
arrangement, the industry etc., is disseminated to the market, immediately and in effective manner, after appropriate consultation with the entity/issuer; |
Chapter III | 17-(a)
(19) PACRA reviews all the outstanding ratings periodically, on annual basis; Provided that public dissemination of annual review and, in an instance of
change in rating will be made; | Chapter III | 17-(b)
(20) PACRA initiates immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in
downgrading of the rating; | Chapter III | 17-(c)
(21) PACRA engages with the issuer and the debt securities trustee, to remain updated on all information pertaining to the rating of the
entity/instrument;| Chapter III | 17-(d)
Probability of Default
(22) PACRA´s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability).
PACRA´s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be
obtained from PACRA´s Transition Study available at our website. (www.pacra.com). However, actual transition of rating may not follow the pattern
observed in the past; | Chapter III | 14-3(f)(vii)
Proprietary Information
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