FLASHNEWS:

AKD Securities Limited – Off the Analyst’s Desk (November 07, 2022)

Karachi, November 07, 2022 (PPI-OT): ILP: Corporate Briefing Key Takeaways

Interloop Limited (ILP) held its corporate briefing session earlier today, wherein the recent financial performance of the company was discussed. The highlights of the briefing are as follows:

The company posted earnings of PkR5.0bn for 1QFY23, higher by 84%YoY, while lower by 7% compared to the earlier quarter. ILP’s net sales clocked in at PkR30.5bn for the period, increasing by 1%QoQ and 58%YoY.

ILP management apprised that it was currently holding inventory with average prices of PkR18,000/bale. Referring to the state of the cotton market following the floods earlier in the year, the management stated that spindles had already built up imported inventory, hence it is not facing any substantial challenges in cotton acquisition.

According to the company, topline growth was driven by; i) Volumetric Growth, ii) increase in average selling price, and iii) devaluation of the PkR against the greenback.

ILP has guided towards Hosiery demand to be dented in the range of 5-10% on a QoQ basis in the ongoing quarter, as a result of inventory build-up at the customers’ end due to normalizing shipping timelines. Furthermore, the company stated that due to its diversified clientele, including high-end and mass-market brands, an economic downturn in the export destinations ends up in demand shifts rather than demand destruction.

The company is in the process of increasing its apparel capacity, with the construction of the new plant already having begun. The project is expected to begin operations by the start of next fiscal year.

Once the Apparel capacity expansion project is brought online, the company is expected to move on to increasing the Hosiery capacity, with construction expected to begin by FY23 year end. ILP expects the expansion to cost US$60mn, financed by 60% Debt and 40% Equity.

Denim capacity is also in the process of being increased to 1.2mn pieces per annum, with gradual increases in capacity planned from Q3 onwards. The segment was in profit in 1QFY23, attributed to the reduction in operational inefficiencies and higher selling prices (FY22 average: US$7.98/pc vs. current: US$10/pc). However, the management has guided towards the segment reporting a minimal loss in the full year period, as a result of the planned expansion.

The company is targeting net revenues of ~PkR115-120bn for FY23. However, average sales prices coming down is a possibility, with the international prices of cotton trading lower, benefit of which would be passed on to the consumer.