VIS reaffirms entity ratings of Interloop Limited

May 17, 2023 (MLN): VIS Credit Rating Company Ltd. (VIS) has reaffirmed the entity ratings of Interloop Limited (ILP) at ‘A+/A-1’ (Single A plus/Single A-One), the company filing on the Pakistan stock exchange (PSX) showed today.

The outlook on the assigned ratings is ‘Stable’. A long-term rating of ‘A+’ signifies good credit quality; protection factors are adequate.

Risk factors may vary with possible changes in the economy. A short Term Rating of ‘A-1’ indicates high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors.

Risk factors are minor. The previous rating action was announced on June 03, 2022.

The ratings reflect ILP’s dominant market position as a leading textile exporter, particularly in hosiery, as well as its presence in apparel, seamless activewear, and yarn sales.

In FY22, ILP ranked third amongst the top ten exporters in the country and has been recognized by numerous reputable organizations and publications as a major global supplier of socks.

Additionally, ratings consider the extensive operating history of nearly three decades, vertically-integrated structure, renowned global brands and retailers as major customers, global marketing presence, and commitment to environmentally friendly and sustainable manufacturing practices.

Ratings reaffirmation reflects robust topline growth along with an uptrend in profitability margins leading to build-up of strong capitalization buffers and improved cash flow coverage over the past two fiscal years.

However, owing to higher debt utilization for expansion, leverage indicators have remained on the higher side vis-à-vis similarly rated peers.

The business risk profile takes into account industry-wide growth in exports over the last year, however, recent floods across the country, high interest rate situation, inflationary pressures, higher electricity costs, and demand slowdown pose risks to the sector over the medium term.

Ratings are constrained by the current weak macroeconomic environment globally and locally.

More than 90% of the revenue comes from export sales, while local sales contribute the remainder.

Segment-wise, hosiery exports generate about three-quarters of revenue, and the remaining is shared by spinning, denim, apparels and others.

Local sales mainly comprise of yarn and wastage. Product-wise, the majority of revenue is generated from the sale of socks, followed by denim trousers, yarn, dyed yarn, garments, boxers, and active wear.

Geographic sales mix depicts concentration as nearly half of the exports are directed towards the U.S., with the remaining spread out across diverse regions such as Germany, Netherland, Ireland, Sweden, and others.

Client concentration risk is elevated, with top 10 clients consistently generating more than two-thirds of the total sales on a timeline, albeit long-standing relationships with respected international brands and high customer satisfaction underpinned by a focus on quality providing sustainability and comfort.

ILP has recently completed expansion in hosiery division, and is currently in the process of establishing a new fully integrated garment manufacturing complex (ILP Apparel Park) in Faisalabad.

Following this expansion, the apparel division is expected to become the second-largest segment of the company. Furthermore, ILP has plans to expand the capacity of all its divisions in the future.

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