Interloop (ILP) reported 3QFY22 NPAT of PKR2.3bn (EPS: PKR2.54), up c.35% yoy, and c.10% qoq. This takes 9MFY22 NPAT to PKR7.0bn (EPS: PKR7.79), up c.50% yoy. The result significantly missed our expected NPAT of PKR3.2bn (EPS: PKR3.59), where the deviation largely stemmed from lower-than-expected gross margins and higher finance costs.
Key highlights from 3QFY22 results
Revenues rose by c.70% yoy to PKR21.3bn (in line with expectations), led by higher export sales. The Hosiery segment has likely been the star performer, experiencing greater sales volumes and improved pricing amid strong demand, in our view. The completion of Hosiery Plant V in the previous quarter may have acted as a catalyst.
Gross margins declined by c.4ppt yoy to c.26% (up c.2ppt qoq), but lower than our expectation of c.29%. As per channel checks, ILP did not record DLTL drawbacks in this quarter as the industry still awaits official notification of approval of the Textile Policy (improvement in core operations in 3Q). With the addition of DLTL, margins would have come in line.
Distribution and Admin expenses rose c.15% yoy, broadly in line with our expectations. Other expenses rose by a sharp c.45% yoy. We await detailed accounts for clarity on the latter.
Finance costs more than doubled yoy to PKR719mn, which may be due to higher Kibor-based borrowings amid sharp PKR/USD depreciation. The effective tax rate clocked in at 8%.
Excluding the margins miss, this is a decent result from ILP as gross margins improved by c.2ppt qoq. We highlight that with the inclusion of DLTL, our earnings would have been in line. The rise in finance costs is likely to ease off in FY23 following an increase in EFS limits to nearly PKR40bn (Kibor-based borrowings would be minimal). The strong revenue growth is likely to continue in the coming quarters following the completion of Hosiery Plant V. According to channel checks, ILP has orders for at least the next 6-9mths. Improvements in Denim margins along with positive Apparel segment penetration, further reinforce our liking for the scrip. We reiterate our Buy stance on ILP with a June 2023 TP of PKR109/sh.