BMA Capital Management hosted a webinar on the Textile Sector today where Mr. Maqsood Muhammad (Group CFO of Interloop Limited) was invited to discuss the changing dynamics of the textile sector in the backdrop of COVID-19.
Following are the key takeaways of the event:
With an organizational network across seven countries, Interloop is one of the world’s largest hosiery manufactures and Pakistan’s 6th largest exporting firm. The company has two manufacturing units in Pakistan, Bangladesh and one associated company in Sri Lanka along with services available in USA, Netherland, China and Japan.
The company has Hosiery capacity to produce 700mn pairs of socks annually, which accounts for over 90% of the total revenue. Other notable segments include yarn, Denim, Seamless and Knitwear.
On account of lower international demand due to COVID-19 pandemic, Pakistan’s exports have seen contraction. However, after the gradual economic recovery in EU and USA, exports have started picking up again. Major portion of Interloop’s export revenue comes from EU (60%) while the rest mainly comes from USA.
Mr. Maqsood shared that the company’s denim division was significantly affected by the COVID situation as it lost more than half of its orders at some point. On the other hand, hosiery division remained least affected as it only lost 15% of the orders. However, situation has now significantly improved as the ILP’s hosiery division is now operating at over 100% utilization level whereas the Denim is operating at 50% utilization level. Management expects hosiery segment to grow by 20-30% next year while Denim segment is expected to achieve 85% utilization level during current fiscal year.
Commenting on the export prices our guest shared that the export prices have not been affected and the company has not passed on the benefit of PKR devaluation to its importers so far, however buyers are asking for the same. Increased sales, lower yarn prices, in addition to PKR devaluation is likely to keep profitability upbeat.
The company has been able to get orders for its hosiery division from three new clients whereas the work has also been done to bring new clients on board for its Denim segment and one good brand is placing orders at very good prices. Mr. Maqsood also shared that the importers have been diversifying their textile orders from China to south Asian markets which presents good opportunity for exporters in our country.
The company’s current energy requirement is 22MW out of which ~14MW is currently met by RLNG while the remaining is fulfilled by captive solar power unit and the WAPDA.
Currently, ILP’s denim segment is operating in losses; however, it is expected to start contributing profits from next year.
Interloop is currently using a cotton mix of 50:50 (imported: local) which was previously at 30:70.
The company is currently being charged at electricity tariff of PKR 12.7/kwh and gas tariff of PKR 1,080 per MMBTU.
The management remains optimistic about Pakistan’s export potential, especially in socks and the apparel segment and continues to explore various opportunities. Report by: BMA Research.