Interloop Limited – the outlook

The management of Interloop Limited (ILP) held a corporate briefing session today to discuss the 1QFY22 financial results and the future outlook on the company’s strategy going forward.

Brief Takeaway

  • Interloop Limited (ILP) announced earnings for 1QFY22 at PKR 2,690mn, up by 95% YoY and 59% QoQ, compared to PKR 1,382mn in same period last year and profit of PKR 1,690mn in 4QFY21.
  • Net sales of the company increased by 50% YoY during 1QFY22 to PKR 19.3bn due to: i) addition of new machineries in its hosiery division aiding volumetric growth of the company, ii) maximum utilization of hosiery plant and iii) depreciation of PKR against USD by 6.5% QoQ which supported topline of the company.
  • Hosiery division performed well in terms of margins and sales as company witnessed 20% growth in hosiery volumes. In addition, denim segment volumes increased by 70% YoY.
  • Hosiery division is still operating at full capacity and ILP will continue this utilization level for the entire year as it has order log book covered till Jun’22.
  • The management informed that they are continuously adding some reputable customers in denim segment which has improved its utilization level. Furthermore, denim segment is expected to be break-even by 1QFY23. Currently, company is making losses on denim segment mainly due to: i) High current raw material prices and ii) company charging lower prices as a part of their market penetration strategy.
  • Average selling price of socks increased to USD 6.00/dozen in 1QFY22 compared to average of USD 5.8/dozen in 4QFY21.
  • Upon completion, both denim and hosiery plant are expected to generate more sales and profits because of economies of scale.
  • The future prospects of the company are encouraging because its order books are overbooked for the current financial year.
  • Current spinning margins are expected to sustain for the entire year as the cotton prices are increasing and local yarn requirement is enough to keep the margins afloat.
  • Imported raw material consists of 30% of the total raw material cost.
  • The company has cotton inventory for the entire year as it has procured cotton early during harvesting season. Cotton requirement of the company is around 175-180k bales per year. Composition of cotton is 50% imported and 50% local.
  • Current power requirement of the company is 25-26MW. As a result of removal of subsidy on gas, the company is expected to use power from the Grid as government will continue to provide cheaper rate of electricity through this.
  • Company is planning to invest around USD 90mn in the apparel segment during Jan-Dec’22.

Courtesy – AHL Research

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