Earnings Report /
Pakistan

Interloop Ltd: 4QFY22 Result - Inventory gains translate higher-than-expected earnings

  • ILP posted an EPS of PKR5.97 for 4QFY22, beating our expected EPS of PKR3.18 amid higher-than-expected GM and revenue

  • GMs increased by c.9ppt YoY, likely due to stellar Hosiery, Spinning segment margins and inventory gains, in our view

  • We have a Buy rating on ILP with a June’23 TP of PKR109/sh amid strong order flows for the next 6-9mths

Intermarket Securities
15 September 2022

Interloop (ILP) reported record 4QFY22 NPAT of PKR5.4bn (EPS: PKR5.97), up c.3.2x YoY, and 2.4x QoQ, taking FY22 NPAT to PKR12.4bn (EPS: PKR13.76), nearly double that of last year. The result significantly beat our expected NPAT of PKR2.9bn (EPS: PKR3.18), where the deviation largely stemmed from higher-than-expected revenue and gross margins, largely on account of robust inventory gains. The result was accompanied with a final DPS of PKR2.0 and bonus issue of 4%, slightly lower than our estimated payout of PKR2.25/sh.    

Key observations:

  • Revenues rose to a record high PKR30.3bn, up a sharp 87% YoY and much higher than our estimates. The Hosiery segment has likely been the star performer, experiencing greater sales volumes and improved pricing amid resilient demand. This, coupled with potentially greater Denim volumes, are likely the major factors behind the surge in revenue.

  • Gross margin increased by a staggering c.9ppt YoY to 33.25%, up c.7ppt QoQ and c.5ppt greater than our estimate of 28%. The surge in GM, according to channel checks, is likely due to robust inventory gains to the tune of PKR2.8bn. 

  • Distribution and Admin expenses rose 58% YoY, due to strong revenue growth.  Other expenses rose by a sharp 3.2x YoY to PKR864mn. We await detailed accounts for clarity on the latter.

  • Among other line items: i) Finance costs more than nearly tripled, owing to higher borrowings and interest rates, ii) effective tax rate clocked in at 9%, lower than our estimated 15%.   

This is a strong result by ILP, as both revenues and gross margins continued the robust growth momentum, superseding the growth seen in 9MFY22. With cotton inventory costs currently lower than ongoing rates in both the international and local markets, we expect inventory gains to continue in FY23. Also, the growth in finance cost is likely to moderate in FY23 following an increase in EFS limits amid record exports in FY22 (KIBOR based borrowings would be minimal). The handsome revenue growth is likely to continue in the coming quarters owing to orders booked of the next 3-6mths and garnering of new clients in the Denim segment. Also, expansion into new Apparel segment and new Hosiery plant 6 in the coming years, further reinforce our liking for the scrip. We reiterate our Buy stance on ILP with a June 2023 TP of PKR109/sh.