KARACHI: VIS Credit Rating Company Ltd. (VIS) has assigned initial entity ratings of ‘A+/A-1’ (Single A plus/Single A-One) to Interloop Limited (ILP). Outlook on the assigned ratings is ‘Stable’.
Long term rating of ‘A+’ signifies good credit quality with adequate protection factors. Risk may varyslightly from time to time because of economic conditions. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors.
Risk factors are minor. Interloop Limited (ILP) was incorporated on April 1992 as a private limited company. Subsequently it was converted into public unlisted company on July 2008 and was listed on Pakistan Stock Exchange (PSX)on April 2019.
Interloop Ltd. (ILP) is Pakistan’s leading multi-category hosiery & apparel manufacturer with vertically integrated operations. The company is engaged in the business of manufacturing and sale of socks, tights, leggings, yarn, denim, and apparels (knitwear and seamless active-wear).
ILP is primarily an export oriented company as export sales constitute more than 90% of the total revenues. The company’s exports are directed to more than 20 countries across the world. The company’s clientele includes major global brands and retailers such as Nike, Adidas, Puma, Target, H&M, C&A, Amazon, and Uniqlo.
The assigned ratings incorporate sound governance and control framework as indicated by the presence of seasoned professionals on the Board of Directors, experienced senior management team and an independent audit function. Business risk profile of the company is supported by improving textile exports outlook given the diversion of orders from other regional countries amidst COVID-19 outbreak and strong emphasis of the Government of Pakistan (GoP) on enhancing exports.
The ratings also take into account significant market share of ILP in overall hosiery exports of Pakistan. Long term established relationships with key customers, especially in the hosiery segment, enable the company to partly pass on the increase in raw material prices to the customers. Assessment of financial risk profile incorporates healthy profitability indicators, strong liquidity profile, and adequate capitalization indicators.
Topline of the company has depicted robust growth on a timeline basis primarily on account of improving product mix which resulted in higher average selling prices, while the company has also reaped the benefit of rupee devaluation. Client wise concentration is present in sales; however, client wise concentration risk is mitigated by long term association with clients.
Higher revenues along with improvement in margins have culminated to improved profitability indicators.
Going forward, management envisages profitability to improve in the backdrop of higher projected revenues supported by growing demand. Liquidity profile is considered strong in the light of healthy cash flows and sound debt coverage ratios. Despite debt drawdown to fund expansion, cash flow coverage is projected to remain strong over the rating horizon.
Given the increase in scale of operations, higher working capital requirements have translated to increase in utilization of short term borrowings, while the quantum of long term borrowings has also grown to fund expansion related capital expenditure. Overall leverage indicators are expected to remain adequate over the rating horizon given the projected improvement in profitability.