Interloop: looping together demand and expansion.

One sector that has come out brimming from the pandemic-hit year has been the textile sector in the country primarily because of resumption of backlogged export orders as well as rising new export orders, especially in the value-added textiles. Where FY20 bogged was down declining exports and profits for the textile sector – mostly weaker 2HFY20 – hopes for FY21 have been pinned to a V-shaped recovery in the sector. Textile exports in FY20 dropped by 6 percent year-on-year with most of the decline witnessed in the last 4 months. The sector’s profits plunged by 62 percent year-on-year in FY20.

However, the current status of the sector is already signaling to a recovery in FY21 both in export value and profitability terms with value-addition as the key driver. Interloop (PSX: ILP), a hosiery giant is matching the pace with investment and focus on all segments especially denim, and knitwear. The company’s performance in its recently announced financial performance for 1HFY21 shows massive increase in the company’s profits.

Around 90 percent year-on-year growth in 1HFY21 earnings for ILP comes from the top where revenues were seen climbing by 37 percent year-on-year. The growth in revenues came from full capacity utilization post revival of the economic activity that brought with itself stockpiled orders as well as order diversion from countries that continued to remain closed or under restrictions due to Covid-19. Not only has ILP’s hosiery division been operating at 100 percent capacity with no more order-booking till June’21 as well as continuous addition of new machineries; but the denim plant also reached close to 100 percent capacity utilization by the end 1QFY21.

Besides the growth in the topline, the gross profits and net profits also benefitted from lower raw material cost - in particular, the procurement of cotton earlier at cheaper prices. Also, the gross margins and net margins improved due to economies of scale being achieved in the denim division and moderate increase in finance cost despite the expansions going on. ILP is growing by leaps and bounds with ongoing expansion projects and integration on the horizon. As per the research note by Alfalah CLSA, capacity addition of up to 22 percent of the current capacity in the hosiery division is expected to be commissioned by end of CY21; Denim division expansion project’s second phase of the project is almost ready and is expected to start its commercial operations by the end of FY21; and the integration of ILP Apparels into ILP as well as is divestment of ILP Bangla Limited is expected soon too.