Interloop Limited (PSX: ILP) was incorporated in Pakistan in 1992 and got listed on PSX in 2019. The company is engaged in manufacturing hosiery, denim, knitted apparel, active wear for the world’s leading brands and retailers.
Besides, ILP also produces yarn. The company has its industrial infrastructure based in Pakistan, an associate manufacturing facility in Sri Lanka, sourcing office and affiliate manufacturing facility in China and marketing offices in USA, Europe and Japan.
Pattern of Shareholding
As of June 30, 2024, ILP has a total of 1401.709 million shares outstanding which are held by 7268 shareholders. Directors, CEO, their spouse and minor childrenhave the majority stake of 71.99 percent in the companyfollowed by local general public holding 18.93 percent shares.
Modarbas and Mutual Funds account for 2.98 percent shares of ILP whileforeign companieshold 2.29 percent shares.Banks, DFIs & NBFIs and insurance companies have a respective shareholding of 1.52 percent and 1.05 percent in ILP. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-24)
With the exception of 2020, the topline of ILP has grown staggeringly in all the years under consideration. Conversely, its bottomline fell in 2020 and 2024. The margins, after maxing out in 2019 touched rock bottom in 2020.
In the subsequent years, the margins took an upward flight to reach their optimum level in 2023.This was followed by a sharp decline in margins in 2024. The detailed performance review of the period under consideration is given below.
In 2019, ILP posted 20.36 percent year-on-year growth in its topline which clocked in at Rs. 37,478.32 million. This mainly came on the back of robust export sales which became even more attractive because of favorable movement in the exchange rate.
High cost of raw materials coupled with depreciating value of Pak Rupee, high fuel and power charges and upward revision in salaries and wages and hiring of new employees as the company added new machinery and equipments in its plants resulted in 16 percent escalation in cost of sales in 2019.
Despite that, gross profit rose by 30.73 percent year-on-year in 2019 with GP margin jumping up to 31.90 percent from GP margin of 29.37 percent posted in 2018. Distribution expense remained quite in control during 2019 while administrative expense surged by 24.18 percent year-on-year.
Other expense also registered massive 84.41 percent year-on-year spike due to higher provisioning done for WPPF, generous donations and charity as well as provision on impairment loss on investment in IL Bangla Limited booked during the year. Other income also magnified by 57.62 percent year-on-year in 2019 due to interest on receivables from IL Bangla Limited.
Operating profit posted healthy 42.93 percentrise in 2019 with OP margin moving up to 17.12 percent from OP margin of 14.42 percent posted in 2018. Finance cost increased by 105.87 percent in 2019 due to higher discount rate during the year.
Gearing ratio fell from 66.95 percent in 2018 to 48.15 percent in 2019 due to issuance of 109 million ordinary shares during the year and a decline in the borrowings.
ILP’s bottomline posted an increase of 33.69 percent year-on-year in 2019 to clock in at Rs.5194.77 million. This translated into NP margin of 13.86 percent, up from NP margin of 12.48registered in 2018. EPS also enlarged from Rs.5.1 percent in 2018 to Rs.6.67 in 2019.
Being an export-oriented business, ILP badly suffered in 2020 due to restrictions on the movement of people and goods on account of COVID-19. Lockdown imposed during the year not only resulted in curtailed operations but also squeezed the demand from major export markets.
ILP’s net sales revenue tumbled by 3.14 percent in 2020 to clock in at Rs.36,302.79 million, yet there was no respite in the cost of sales owing to supply bottlenecks. This pushed the gross profit down by 34.22 percent year-on-year in 2020 with GP margin deteriorating to 21.66 percent. Distribution expense shrank by 27.89 percent because of lower sales volume, while administrative expense grew 10.77 percent in 2020.
Other expense faded by 35.69 percent in 2020 on account of lesser provisioningdone for WPPF, lesser donations and no provisions booked against impairment loss in 2020. Other income provided tremendous support to the bottomline as it grew by 585.41 percent in 2020 due to robust profit on TDRs and TFCs.
Despite shrunken operating and other expense and robust other income, operating profit couldn’t sustain and dropped by 49.30 percent year-on-year in 2020 with OP margin drastically falling down to 8.96 percent. Finance cost grew by 14.21 percent in 2020 due to high discount rate in the initial quarters of FY20 as well as increased borrowings during 2020.
Gearing ratio ticked up to 55.53 in 2020. Net profit fell by 65.42 percent year-on-year in 2020 to clock in at Rs.1796.40 million with NP margin of 4.95 percent. EPS also contracted to Rs.2.06 in 2020.
In 2021, ILP’s topline bounced back and boasted a year-on-year growth of 51.4 percent to clock in at Rs.54,962.47 million.
High raw material charges, upward revision is salaries and wages, soared knitting, processing and packing charges as well as inflated fuel and power charges pushed the cost of sales up by 43.29 percent. GP margin rebounded to 25.86 percent in 2021 with 80.73 percent rise in gross profit due to hefty export sales.
Higher sales volume translated into higher selling commission which drove the distribution expense up by 31.50 percent in 2021. Administrationand other expense also went up by 27.22 percent and 82.25 percent respectively in 2021. Reversal of impairment loss and exchange gain were the two main drivers behind 64.56 percent year-on-year rise in other income in 2021.
Operating profit multiplied by an astounding 146.54 percent in 2021 with OP margin of 14.59 percent. Downward revisions in discount rate played a role in keeping the finance cost almost intact despite increased borrowings in 2021.
Gearing ratio climbed to 59.62 percent in 2021. Net profit posted a tremendous gain of 250.23 percent in 2021 to clock in at Rs. 6291.57 million with NP margin of 11.45 percent. EPS also improved and rose up to Rs. 7.0 in 2021.
2022 stands out in terms oftopline growth which was recorded at 65.38 percent in 2022. Steep depreciation of local currency provided remarkable growth impetus to ILP’s sales which reached the record high value of Rs.90,894.05 million in 2022.
Despite high inflation and supply chain bottlenecks due to import restrictions, gross profit surged by 83.41 percent year-on-year in 2022 with GP margin of 28.68 percent. High operating cost came on the back of hefty sales commission, sea and air freight, export development surcharge and upward revisions in salaries and wages.
Other expense multiplied by 133.11 percent year-on-year in 2022 on the back of realized loss on derivative financial instruments as well as higher provisioning of WWF and WPPF on account of high profits. Other income didn’t paint a good picture as it shrank by 64.94 percent in 2022 as there was no reversal of impairment loss in 2022 unlike the previous year.
Operating profit rose by 98.46 percent in 2022 with OP margin recorded at 17.51 percent. Finance cost surged by a massive 117.34 percent in 2022 due to monetary tightening as well as high borrowings. Gearing ratio escalated to 63.12 in 2022.
Net profit mounted by 96.45 percent in 2022 to stand at Rs.12,359.50 million with NP margin of 13.60 percent. EPS clocked in Rs.8.82 in 2022.
ILP registered 31.14 percent year-on-year topline growth in 2023 despite severe economic and political headwinds in the country. Net sales clocked in at Rs.119,200.29 million in 2023.
Supply chain bottlenecks, shutdown of gas supply, sizable upsurge in cotton prices inflated the cost of sales by 22.37 percent in 2023, yet gross profit rose by 52.97 percent with GP margin clocking in at 33.45 percent – the highest during the period under consideration.
Distribution expense grew by 16.87 percent due to higher selling commission and shipping charges incurred during the year.
Administrative expense also surged by 33.41 percent in 2023 on account of higher payroll expense despite the fact that ILP streamlined its workforce from 31,986 employees in 2022 to 30,774 employees in 2023. 26.96 percent year-on-year spike in other expense in 2023 was due to higher profit related provisioning done during the year.
Other income grew by 177 percent in 2023 on the back of profit on TFCs, exchange gain and unrealized gain on derivative instruments. ILP registered 70.34 percent improvement in its operating profit in 2023 with OP margin climbing up to 22.74 percent. Finance cost multiplied by 121.73 percent in 2023 owing to higher discount rate and additional long-term and short-term borrowings obtained during the year.
However, increase in the company’s equity due to higher un-appropriated profit and elevated paid-up capital through issuance of bonus shares pushed down gearing ratio to 57.57 percent in 2023.
Net profit strengthened by 63.21 percent to clock in at Rs.20,171.846 million with EPS of Rs.14.39 and NP margin of 16.92 percent.
In 2024, ILP recorded year-on-year improvement of 30.98 percent in its net sales which clocked in at Rs.156,128.87 million. This was due to surge in export orders.
However, stability in the value of local currency, inflationary pressure and energy cost didn’t allow the company to sustain its GP margin which fell to 27.89 percent in 2024. In absolute terms, gross profit ticked up by 9.21 percent in 2024.
Distribution expense multiplied by 42.38 percent in 2024 due to higher shipping charges and elevated sales commission owing to increased sales volume.
Administrative expense also hiked by 37.43 percent during the period due to higher payroll expense on account of inflationary pressure and workforce expansion from 30,774 employees in 2023 to 34,736 employees in 2024.
Lower profit related provisioning and no loss realized on derivatives financial instruments overshadowed the exchange loss of Rs.20.769 million and provision for obsolete inventory worth Rs.48.274 million recorded during the year and cut down other expense by 24.98 percent in 2024.
Other income grew by 304.67 percent during the year due to realized and unrealized gain recorded on derivatives financial instruments and higher profit recognized on TFCs.
The company didn’t make any exchange gain during the period. Operating profit picked up by 3 percent in 2024 with OP margin clocking in at 17.89percent.
Repayment of subsidized loans and acquiring new loans increased the outstanding total borrowing of ILP during the year. This coupled with higher discount rate drove up finance cost by 83.18 percent in 2024.
Gearing ratio ticked down to 56.25 percent in 2024. Net profit slumped by 21.82 percent to clock in at Rs.15,771.267 million in 2024with EPS of Rs.11.25. NP margin also slid to 10.10 percent in 2024.
Recent Performance (9MFY25)
During the nine-month period of the ongoing fiscal year, ILP’s net sales posted year-on-year growth of 11.12 percent to clock in at Rs.125,407.958 million.
While sales volume ticked up, stagnant exchange rate, high cost of sales and gestation period of the newly launched apparel master project didn’t allow ILP to record a healthier gross profit in 9MFY25.
Gross profit fell by 27.33 percent during the period with GP margin recorded at 19.61 percent versus GP margin of 30 percent recorded in 9MFY24.
Distribution expense surged by 28.48 percent in 9MFY25 due to higher sales commission, freight and shipping charges incurred during the period. Administrative expense inched up by 8.82 percent in 9MFY25 due to higher payroll expense as the company launched new projects which required additional human resources.
Lower profit related provisioning appears to be the reason behind 46.78 percent decline in other expense in 9MFY25.
Other income inched up by 14.25 percent during the period under review seemingly due to gain recorded on derivatives financial instruments. ILP recorded 45.53 percent plunge in its operating profit in 9MFY25 with OP margin clocking in at 9.61 percent versus OP margin of 19.61 percent recorded in 9MFY24.
Finance cost ticked up by 2.17 percent in 9MFY25 despite monetary easing. This was due to higher working capital requirements and increased long-term loan obtained during the year to finance its expansion projects.
ILP’s net profit deteriorated by 79.40 percent to clock in at Rs.2709.80 million in 9MFY25. This translated into EPS of Rs.1.93 in 9MFY25 versus EPS of Rs.9.39 registered in 9MFY24. NP margin also dipped from 11.66 percent in 9MFY24 to 2.16 percent in 9MFY25.
Future Outlook
Geopolitical tensions and imposition of reciprocal tariff by the US government may take its toll on export orders. On the flipside, local economic indicators have improved lately, warrantingenhancement in business opportunities in the home market.
The company is also exploring new geographical destinations to channel its export sales besides working relentlessly on achieving operational efficiency and diversifying its sales mix.
Moreover, falling commodity prices, stable exchange rate and thinning discount rate may ease off cost pressure and result in improved margins.