PACRA assigns AA- rating to Khaadi ahead of planned IPO

The Pakistan Credit Rating Agency (PACRA) has assigned Khaadi Pakistan Limited an initial long-term entity rating of AA- and a short-term rating of A1, citing the fashion retailer’s established market position, improving profitability and operational efficiency as it prepares for a planned initial public offering (IPO).

The ratings, announced on Oct. 9, carry a stable outlook, PACRA said in a statement.

Khaadi, formerly known as Khaadi Pakistan SMC Pvt. Limited, is a wholly owned subsidiary of Weaves Corporation Limited. Weaves Corporation is 80% owned by Weaves Holding Limited and 20% by the International Finance Corporation, a member of the World Bank Group.

The company designs, markets, distributes and retails textile products and accessories through 31 domestic outlets, 11 international stores and three fulfillment centers across the United Kingdom, the United States and the United Arab Emirates. It also operates an e-commerce channel.

PACRA said Khaadi’s brand strength and sponsor expertise support its credit profile as the company pursues an expansion strategy focused on larger, experience-oriented retail stores.

IPO to support expansion

Khaadi is shifting from broad retail coverage toward larger stores designed to enhance the customer experience. The company has converted 18 of its 31 domestic outlets to the new format, with some experience stores spanning up to 45,000 square feet, according to PACRA.

The expansion is expected to be financed through internally generated funds and proceeds from the planned IPO.

Under a pre-IPO arrangement, 250 million shares have already been placed, while another 250 million shares are expected to be offered through the public offering. The resulting equity injection is expected to strengthen the company’s capital base, PACRA said.

Arif Habib Limited is advising Khaadi on the transaction.

As part of the listing process, the company has converted from a single-member company into a public company and is undertaking the required regulatory and corporate governance measures, including compliance with the Code of Corporate Governance framework.

Sales and margins improve

Khaadi recorded net sales of PKR 17.08 billion in the first six months of calendar year 2026, representing period-adjusted growth of 35.9%, PACRA said. Exports accounted for 10.61% of gross sales.

The rating agency said the company’s gross, operating and net margins were improving, supported by its brand positioning and greater operational efficiency.

However, reported profitability in calendar year 2025 included non-cash fair-value gains and asset write-offs that broadly offset each other, PACRA noted.

To strengthen brand ownership and investor confidence ahead of the planned capital-market transaction, Khaadi Pakistan acquired the rights to use the Khaadi brand from its parent company for PKR 8 billion.

The amount is payable on demand, subject to a 12-month grace period. PACRA said the arrangement was not expected to create a financial burden for the company.

Debt servicing and liquidity remain key risks

Despite improving operating performance, PACRA highlighted pressure on debt-servicing coverage and liquidity as Khaadi continues to invest in retail expansion and distribute dividends.

The company has shifted its borrowing mix toward long-term debt to finance capital expenditure. However, this strategy has increased the current maturities of long-term borrowings, reducing its debt-service coverage ratio to 1.4 times in calendar year 2025 from 3.8 times a year earlier.

PACRA said coverage remained adequate, supported by improved earnings and stronger operating performance.

The company’s working-capital cycle remains efficient, aided by supplier credit. However, liquidity remains tight amid sustained capital spending and dividend payouts.

Its capital structure remains geared, with retained earnings supporting the equity base, although distributions to the parent company have moderated that support.

Outlook depends on IPO and financial discipline

PACRA said Khaadi’s ratings would depend on its ability to sustain sales growth and margins as it upgrades its retail network, while reducing leverage and strengthening liquidity through the planned IPO.

Improved debt-service coverage, prudent dividend payments and preservation of the brand’s competitive position will remain central to the company’s future rating trajectory, the agency said.

Khaadi’s sustainability initiatives include a zero-carbon, self-sustaining green store in Mardan. Its “Kreate Your Mark” initiative has also supported women-led small businesses by providing infrastructure to sell their products within Khaadi’s experience stores.

PACRA said these initiatives form part of the company’s broader operational strategy, alongside efforts to reduce operating expenses.