Credit Rating Report

Fakir Apparels Ltd.

Particulars Fakir Apparels Ltd BDT 269.1 million Long Term Outstanding (LTO) BDT 350.0 million CC Hypo limit* BDT 578.5 million aggregate fund based limit BDT 2,420.0 million aggregate non fund based limit Outlook
Lr- Loan rating; ST-Short Term * Due to revolving nature CRAB views CC (Hypo) as Long Term Facility

Ratings A1 A1 (Lr) A1 (Lr) ST-3 ST-3 Stable

Remarks

Please see Appendix-1 for details

Date of Rating: 23 October 2012 Validity: The entity rating is valid up to 30 June 2013 and the loan ratings are valid up to limit expiry date of respective credit facilities or 30 June 2013 whichever is earlier. Rating Based on: Audited financial statements up to 31December 2011 and other relevant quantitative & qualitative information up to the date of rating declaration. Methodology: CRABs Corporate Rating Methodology (www.crab.com.bd) Analysts: Nur Elahee Molla nur_elahee@crab.com.bd Hussain Md. Yasin yasin@crab.com.bd

RATIONALE

Credit Rating Agency of Bangladesh Limited (CRAB) has assigned A1 (Pronounced Single A One) rating in the Long Term to Fakir Apparels Limited (hereafter referred to as FAL or the Company) and A1 (Lr) rating to BDT 269.1 million aggregate Long Term Outstanding (LTO) and BDT 350.0 million CC Hypo limit in the Long Term. CRAB has also assigned ST-3 Year ended Dec. 31 2011 5,765.2 577.6 10.0 5.1 9.8 0.5 106 2.2 3.9 (12.8) (278.5) 4.7 2010 4,275.1 396.2 9.3 3.0 5.9 0.7 92 2.9 5.1 (294.8) (773.8) 2.8 2009 3,211.4 301.0 9.4 2.9 5.80 0.74 91 1.98 3.7 208.7 58.9 2.6 The assigned ratings incorporate FALs steady improving business profile supported by growing business presence in the garments industry. Through economies of scales of large production capacity with management expertise, timely delivery of quality products and long relationship with renowned buyers FAL has developed a formidable edge in terms of cost efficiency and growth opportunities although the gross profit margin was comparatively low over the years. Total sales of the Company have been increasing over the years following the increase in production capacity and its utilization. FAL reported BDT 5,765.2 million sales with 34.9% growth in 2011 followed by 33.1% growth in 2010 which was considered as sound business strength of the Company while assigning the ratings. Moreover long relationship with renowned customers along with export to new branded customers in recent years followed by successful expansion of capacity and utilization reveal management competency and business strength of the Company. Although the rating to BDT 578.5 million fund based limit and BDT 2,420.0 million non-fund based limit in the Short Term.

Financial Highlights (Mil. BDT) Net Sales EBITDA EBITDA Margin (%) Net Profit Margin (%) ROAA (%) Quick Ratio () Operating Cycle (Days) Debt to Equity () Borrowed Fund to EBITDA () Cash Flow from Operation Free Cash Flow EBIT/Interest (x)

PROFILE
Fakir Apparels Ltd. started its commercial operation in November 1998. Presently the Company has complete integrated production facilities including knitting, dyeing, printing, embroidery, cutting, sewing and finishing with 75 sewing lines. The factory is located at BSCIC Industrial Estate, Fatullah, Narayangonj on total land area of 2,101 decimals.

CRAB I CRAB Ratings on Corporate Credit Digest I 15 November 2012

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CRAB Rating Report

Readymade Garments

Fakir Apparels Ltd

profitability position of the Company in the bottom line has been improving over the years the efforts of the management to improve cost efficiency & operational efficiency were not reflected in the gross profit margin and EBITDA margin during the same period which was considered while assigning the ratings. The ratings are also constraint by reasonably high leverage position (debt ratio: 2.2x in 2011 and 2.9x in 2010) irrespective of substantial increase in equity over the years, due to increase in borrowed fund to support prolonged operating cycle and higher inventory requirement at the year end. Therefore the Coverage indicators were also comparatively low over the years. The contribution of short term working capital loan in due course of business to support timely delivery of products eventually lessens the credit risk of the Company. The liquidity position of the Company was slight stringent due to delay in inventory processing period to ensure sufficient stock to support timely delivery of products which put downward pressure on cash flow position of the Company. Although there was record of forced loans on regular basis it did not adversely affect the assigned ratings as the forced loans were not created due to FALs inability to pay the bills rather to pay the bills immediately after maturity where there were slight long gap between export proceeds receiving period and acceptance period. The forced loans are adjusted subsequently from the export proceeds and there was no record of cancellation of export LC or pile up of stock lot (as per management and bankers opinion). The ratings are also supported by promoters long record of successful business operation having steady growth prospects, production facility & technology used, potential business & financial improvement in the upcoming year following the implementation of BMRE project, experience management with structured management practice, planning & monitoring system with assistance of IE & planning department and first react software ensuring timely delivery of products, employee retention rate, easy access to data and quick flow of information.

www.crab.com.bd; www.crabrating.com

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Fakir Apparels Ltd

CRAB RATING SCALES AND DEFINITIONS Long Term (Corporate)

Long Term Rating AAA Triple A AA1, AA2, AA3* Double A Definition Companies rated in this category have extremely strong capacity to meet financial commitments. These companies are judged to be of the highest quality, with minimal credit risk. Companies rated in this category have very strong capacity to meet financial commitments. These companies are judged to be of very high quality, subject to very low credit risk. Companies rated in this category have strong capacity to meet financial commitments, but are susceptible to the adverse effects of changes in circumstances and economic conditions. These companies are judged to be of high quality, subject to low credit risk. Companies rated in this category have adequate capacity to meet financial commitments BBB1, BBB2, BBB3 Triple B but more susceptible to adverse economic conditions or changing circumstances. These companies are subject to moderate credit risk. Such companies possess certain speculative characteristics. Companies rated in this category BB1, BB2, BB3 Double B B1, B2, B3 Single B CCC1, CCC2, CCC3 Triple C CC Double C have inadequate capacity to meet financial commitments. Have major ongoing uncertainties and exposure to adverse business, financial, or economic conditions. These companies have speculative elements, subject to substantial credit risk. Companies rated in this category have weak capacity to meet financial commitments. These companies have speculative elements, subject to high credit risk. Companies rated in this category have very weak capacity to meet financial obligations. These companies have very weak standing and are subject to very high credit risk. Companies rated in this category have extremely weak capacity to meet financial obligations. These companies are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. Companies rated in this category are highly vulnerable to non-payment, have payment arrearages allowed by the terms of the documents, or subject of bankruptcy petition, but have not experienced a payment default. Payments may have been suspended in accordance with the instrument's terms. These companies are typically in default, with little prospect for recovery of principal or interest. D rating will also be used upon the filing of a bankruptcy petition or similar action if payments on an obligation are jeopardized.

A1, A2, A3 Single A

C Single C

D (Default)

*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

CRAB I CRAB Ratings on Corporate Credit Digest I 15 November 2012

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Fakir Apparels Ltd

CRAB RATING SCALES AND DEFINITIONS LONG-TERM RATING: LOANS/FACILITIES FROM BANKS/FIS (All loans/facilities with original maturity exceeding one year)
RATINGS AAA (Lr) (Triple A) Highest Safety AA (Lr)* (Double A) High Safety A (Lr) Adequate Safety BBB (Lr) (Triple B) Moderate Safety BB (Lr) (Double B) Inadequate Safety B (Lr) High Risk CCC (Lr) Very High Risk CC (Lr) Extremely High Risk C (Lr) Near to Default DEFINITION Loans/facilities rated AAA (Lr) are judged to offer the highest degree of safety, with regard to timely payment of financial obligations. Any adverse changes in circumstances are unlikely to affect the payments on the loan facility. Loans/facilities rated AA (Lr) are judged to offer a high degree of safety, with regard to timely payment of financial obligations. They differ only marginally in safety from AAA (Lr) rated facilities. Loan/facilities rated A (Lr) are judged to offer an adequate degree of safety, with regard to timely payment of financial obligations. However, changes in circumstances can adversely affect such issues more than those in the higher rating categories. Loans/facilities rated BBB (Lr) are judged to offer moderate safety, with regard to timely payment of financial obligations for the present; however, changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for issues in higher rating categories. Loans/facilities rated BB (Lr) are judged to carry inadequate safety, with regard to timely payment of financial obligations; they are less likely to default in the immediate future than instruments in lower rating categories, but an adverse change in circumstances could lead to inadequate capacity to make payment on financial obligations. Loans/facilities rated B (Lr) are judged to have high risk of default; while currently financial obligations are met, adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal. Loans/facilities rated CCC (Lr) are judged to have factors present that make them very highly vulnerable to default; timely payment of financial obligations is possible only if favourable circumstances continue. Loans/facilities rated CC (Lr) are judged to be extremely vulnerable to default; timely payment of financial obligations is possible only through external support. Loans/facilities rated C (Lr) are currently highly vulnerable to non-payment, having obligations with payment arrearages allowed by the terms of the documents, or obligations that are subject of a bankruptcy petition or similar action but have not experienced a payment default. C is typically in default, with little prospect for recovery of principal or interest. C (Lr) are typically in default, with little prospect for recovery of principal or interest. D (Lr) Default Loans/facilities rated D (Lr) are in default or are expected to default on scheduled payment dates.

*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

www.crab.com.bd; www.crabrating.com

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Fakir Apparels Ltd

SHORT-TERM CREDIT RATING: LOANS/FACILITIES OF BANKS/FIS

(All loans/facilities with original maturity within one year) RATING
ST-1

DEFINITION This rating indicates that the degree of safety regarding timely payment on the loans/facilities is very strong. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is strong; however, the relative degree of safety is lower than that for issues rated higher. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is adequate; however, the issues are more vulnerable to the adverse effects of changing circumstances than issues rated in the two higher categories. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is marginal; and the issues are quite vulnerable to the adverse effects of changing circumstances. This rating indicates that the degree of safety regarding timely payment on the loans/facilities is minimal, and it is likely to be adversely affected by short-term adversity or less favorable conditions. This rating indicates that the loans/facilities are expected to be in default on maturity or is in default.

Highest Grade
ST-2

High Grade

ST-3

Adequate Grade

ST-4

Marginal
ST-5

Inadequate Grade

ST-6

Lowest Grade

Copyright 2012, CREDIT RATING AGENCY OF BANGLADESH LIMITED ("CRAB"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT CRABS PRIOR WRITTEN CONSENT. All information contained herein is obtained by CRAB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided as is without warranty of any kind and CRAB, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall CRAB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of CRAB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if CRAB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY CRAB IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling.

CRAB I CRAB Ratings on Corporate Credit Digest I 15 November 2012

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