VIS upgrades Interloop's ratings

July 19, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of Interloop Limited (PSX: ILP) from ‘A+/A-1’ to AA-/A-1, said a press release issued on Thursday.

Long-term rating of ‘AA-’ reflects high credit quality; Protection factors are strong, the rating agency said.

Risk is modest but may vary slightly from time to time because of economic conditions. Short term rating of ‘A-1’ indicates strong likelihood of timely repayment of short-term obligations with excellent liquidity factors.

Outlook on the assigned ratings remains Stable. Previous Rating action was announced on May 10, 2023.

ILP, a prominent textile entity on the Pakistan Stock Exchange, leads with its vertically integrated structure and diverse product portfolio. Specializing in Hosiery, Denim, Knitted Apparel, and Seamless Active wear, ILP serves global brands and retailers.

With a strong yarn production segment, the company caters to various clients in the textile sector.

ILP maintains a significant presence in key markets such as the Netherlands, China, Japan, USA, and Sri Lanka, supported by a workforce exceeding 35,000 individuals.

Assigned ratings incorporate the medium business risk profile of the textile sector in Pakistan, marked by exposure to economic cyclicality and intense competition.

The sector's performance is notably influenced by broader economic conditions, rendering it susceptible to demand fluctuations driven by economic factors.

Furthermore, as a substantial contributor to total exports, the textile industry faces exposure to global economic cyclicality, geopolitical challenges, and liquidity constraints due to lengthy process of sales tax refunds.

Supply-side risks, including local cotton crop production and reliance on imported raw materials, expose the sector to significant exchange rate risk.

Upgraded ratings consider the company’s business updates wherein in FY23, Interloop Limited made investments to diversify its revenue sources by expanding its capacity within the apparel segment and the board has further approved investments across various segments.

Moreover, in FY23, ILP surpassed the Rs100 billion sales milestone, reaching a total of Rs119.2bn, reflecting a year-on-year growth of 31%.

Gross Profit and Net Profit margins showed improvement during review period.

Moreover, ILP has achieved a milestone by becoming Pakistan’s top exporter for FY24.

Upgradation of ratings also take into account the Company’s financial risk profile.

ILP's equity grew to Rs43.8bn amid strong internal cash generation.

Total debt increased to Rs59.6bn with both long-term and short-term borrowing rising.

ILP's gearing and leverage ratios registered marginal improvement during the review period.

Additionally, ILP maintained a healthy Debt Service Coverage Ratio (DSCR) above 4.5x in FY23 while liquidity profile also remained adequate.

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