Interloop Limited (PSX: ILP) was established in 1992 but it was not listed on the country’s stock exchange until fairly recently in 2019. It is a vertically-integrated, multi-category company that manufactures hosiery, denim, knitted apparel and active wear. In addition, it produces yarn for textile customers. All of its plants are located in the province of Punjab.
Shareholding pattern
As at June 30, 2021, 81 percent shares are held by the directors, CEO, their spouses and minor children. Another 5 percent are held in modarabas and mutual funds. The local general public holds 6 percent shares while the remaining roughly 8 percent shares are with the rest of the shareholder categories.
Historical operational performance
In the three years of available annual financial statements, the company has witnessed a growing topline twice, while profit margins inclined marginally in FY19, decreased in FY20, before rising again in FY21.
Revenue in FY19 registered a growth rate of over 20 percent to reach over Rs 37 billion in value terms, from last year’s Rs 31 billion. The company earns majority of its revenue from export sales, while local sales make a small share in the total revenue pie. During the year, export sales grew by over 23 percent largely attributed to currency depreciation that led to favourable prices in the export market, while local sales contracted marginally by 2 percent. The higher revenue reflected in the gross margin that was recorded at nearly 32 percent, compared to over 29 percent in FY18. This also trickled to the bottomline that grew to Rs 5.2 billion with a net margin of close to 14 percent versus Rs 3.9 billion in FY18.The 14 percent net margin was the highest recorded.
Topline contracted in FY20 by 3 percent due to the outbreak of the Covid-19 pandemic that resulted in strict lockdowns. This meant that not only production processes came to a halt, but retail business was also impacted. For the company, export sales were lower by nearly 2 percent while for the industry there was a decline of over 6 percent. Local sales of the company also reduced, but only marginally. But with production cost escalating to over 78 percent, gross margin was recorded at its lowest 21.7 percent. This also trickled to the net margin that also received some support from other income. Thus, it was recorded at close to 5 percent that was the lowest seen.
In FY21, topline recovered as it recorded a growth of 51.4 percent to reach all-time high revenue of nearly Rs 55 billion. Export sales grew by 51 percent to reach Rs 50.4 billion, while local sales grew to Rs 5.5 billion from last year’s Rs 3.8 billion. This growth was attributed to the recovery of pent-up demand as lockdowns eased and global markets also gradually opened up. With production cost down to 74 percent of revenue, gross margin improved to nearly 26 percent. With decreases in operating expenses and finance expense as a share in revenue, net margin climbed further up to over 11 percent, while bottomline stood at an all-time high of Rs 6.3 billion.
Quarterly results and future outlook
Revenue in the first quarter of FY22 was higher by nearly 50 percent year on year. This was attributed to resumption of business activities. The company witnessed sales over and above the breakeven point that allowed for higher profitability as well. Net margin was recorded at almost 14 percent for the quarter compared to 10.7 percent in the same period last year. Overall, the industry also saw a 24 percent rise in exports.
The second quarter also saw revenue higher by 50 percent year on year. Sales volumes increased significantly partly due to the spillover from last year and the company also explored new opportunities. However, production cost was slightly higher year on year as a share in revenue at over 75 percent, compared to nearly 75 percent in 2QFY21. This also reflected in the net margin that stood at 10 percent versus 11.4 percent in the same period last year. During the period, the industry faced the challenge of gas shortage that resulted in reduced operations, and the production capacity was expected to go down to 80 percent.
The third quarter saw a 70 percent rise year on year. The overall industry also saw exports growing by 26 percent, predominantly coming from the value-added sector. This, in turn, was attributed to high demand from the west as summer season approached, among other factors. But as production cost grew to 74 percent of revenue, compared to 70 percent in 3QFY21, net margin declined to 10.7 percent for the period, versus 13.6 percent in the corresponding period last year. The company is investing to increase its capacity to cater to the growing demand. The hosiery plant, initially planned to be operational in FY25 is now expected to be operational a year earlier. Moreover, the company is automating its processes and making use of technology to improve efficiency and quality.