Analyst Briefing: Interloop to continue to operate at full capacity due to healthy order books

November 20, 2020 (MLN): Interloop Limited (ILP) held its conference call yesterday whereby the management discussed Company’s financial performance as well as future roadmap.

To recall,  the company reported 2.7x YoY increase in net profits after tax for 1QFY21 to Rs 1.33 billion (EPS: Rs1.53), compared to Rs 491 million (EPS: Rs 0.56) in the same period last year.

The management informed that company earned profits on the back of higher net sales which increased by 38% YoY during 1QFY21 to Rs 13 billion primarily due to hosiery utilization at 100% post revival of economic activity, increase in utilization of the denim plant given addition of new customers, and addition of new machineries in its hosiery division.

The key points of the briefing covered by Arif Habib Limited revealed that the company is currently operating at full capacity in both the Hosiery and Denim segments, and it will continue this utilization level for the entire year as it has enough orders from customers.

The company’s Denim segment, which became operational in December 2019, had been impacted significantly by the pandemic. However, the management expects it to become profitable from April 2021, as the company has been adding more reputable customers, such as Guess and Mustang jeans into their portfolio.

Discussing about company’s business diversification and expansion plan, management informed that Interloop entered into the Denim Apparel Segment and successfully installed a production facility with a capacity of 20,000 pieces per day. The First phase has successfully started operations in 2QFY20. Unfortunately, the COVID-19 pandemic affected the business badly as it faced cancellation of orders, as result, during the 1QFY21, Denim Plant operated at around 57% utilization.

In the second phase of the Denim plant which will become operational in last quarter of FY21, the production capacity will be enhanced to 40,000 pieces per day, the management said, adding that the project is 97% complete in terms of infrastructure and utilities. The project cost is around Rs 8.3 billion out of which 81% of the budget has already been consumed. Upon completion both denim and hosiery plant are expected to generate more sales, and profits because of economies of scale. The exports of the company would increase to US$400-450mn when all the announced expansion projects will be completed (exports are currently US$209mn), the management highlighted.

Shedding light on the furture prospects of the company, the management is of the view that their future prospects are encouraging because export orders for ILP are expected to remain robust due to the strong order flows received from the customers. So far, the company has not seen any impact of second wave of Covid-19, as ILP has not witnessed any order cancellations due to onine sales delivey, the added.

The management also disclosed that the company has signed an agreement with Organic Cotton Accelerator to develop the local organic cotton supply chain. Pakistan used to import organic cotton from India; however, due to political issues between the two countries, Pakistan is importing organic cotton from other countries, like Turkey, Africa, which is quite expensive. Moreover, due to the shift of brands toward organic cotton, there is a need to grow organic cotton locally.

With regards to the Apparels segment (IL Apparel),  the management underlined that the company is receiving positive responses for their products (knitwear). Currently, the segment only consists of cutting and sewing divisions, where the company procures fabric from external suppliers. The company also plans on expanding the segment in order to add knitting and dyeing units, in the future, which could add further value to the business, the management disclosed.

Discussing about new about the formulation of the new Textile policy (which still awaits approval), the management said that new textile policy will be beneficial as this will support SMEs and will allow consistency in government policies for the next five years.

Furthermore, on GIDC front, the management said that there are no outstanding payments as ILP has paid all the amount on time.

The Company also decided to divest its investment from Interloop Bangladesh soon due to non-cooperative attitude of Bangladesh govt by not issuing visas to investors.

Regarding inventory, the management apprised that Company has cotton inventory for the entire year as they foresaw decline in domestic cotton production and imported in advance during harvesting season.

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Posted on: 2020-11-20T16:23:00+05:00