Topline Reiterates Buy Stance on ILP
Staff Report:
Islamabad: Topline Research has reiterated its BUY stance on Interloop Limited (ILP) with Jun-2026 target price of Rs75/share, offering an upside of 31% and dividend yield of 2%, taking total return to 33%.
The company has underperformed benchmark index by 68% in FY25TD owing to weak financial performance on the back of higher interest expenses and losses faced by apparel segment due to its trial runs in last couple of quarters.
“We expect company to return to normalcy in its apparel segment in FY27 after likely breakeven in FY26. Furthermore, we expect earnings CAGR for FY27-29 to clock in at 33% mainly due to (1) normalcy in apparel segment, (2) capacity expansions in hosiery, denim, yarn, and renewable energy and (3) substantial decline in interest expense,” Topline said in a report.
Share price has underperformed: Company reported a 78% YoY fall in 9MFY25 profit owing to 27% gross loss (based on external sales) incurred in apparel segment, which resulted in overall gross margins of 20.4%, down 270bps from 9MFY24. We expect gross margins to gradually recover to an average of 22.5% in the next 3 years.Topline Projects OGDCL Earning in 3QE FY25
Apparels Segment posted gross losses owing to trial run of new capacity: By end of FY24, company increased its apparel segment capacity to 34mn pieces per year, up 53% from FY23 level. We expect apparel segment to breakeven by FY26 and the positive gross margins from FY27. Historically, apparel segment has contributed 10% gross margins on average based on FY21-23 data (min: 5%, max: 14%).
While other textile companies in apparel segment have average gross margins of 10-15%, as of FY22-24 with average of 13%. We have assumed gross margins of 0% and 10% for ILP in FY26 and FY27, respectively, taking cue from peers, and historic analysis of ILP.
Revenue growth momentum to continue amidst expansions: ILP has announced expansions in hosiery, denim, and yarn that are expected to drive revenue growth in the coming quarters. We expect revenue CAGR of 19% from FY26-29. As a result of this increase in revenue and expected improvement in apparel gross margins, we expect EPS of the company to recover by 135/58% to Rs7.1/Rs11.2 in FY26/FY27 after posting ~74% decline in FY25 to Rs3.01/share.
US Tariffs; an evolving situation and likely to be resolved: We believe, US tariff issue would be resolved soon as US has already made a deal with UK, while tariffs on China are also paused for 90 days as further discussions between China USA are ongoing. Trump in its media briefing has also mentioned that he will be negotiating and improving trade with both Pakistan and India after both countries have reached to a ceasefire agreement.
“We believe, this ceasefire may help Pakistan reaching a better deal with US in terms of protecting its key exportable product of Textile,” Topline said.
Attractive Valuation: Topline has used Free Cash flow to the Firm (FCFF) method to arrive at Jun-2026 target price of Rs75/share for ILP, suggesting total return of 33% (including dividend yield of 2% at 40% payout ratio) at closing price of Rs57.02/share.
ILP trades at an FY26F and FY27F PE of 8.04x and 5.08x, respectively as compared to its 5-year Average (since Listing) historic forward PE of 7.7x. Historically textiles were valued at lower PE than market due to their dependance on government incentives like (1) applicability of turnover tax, (2) significantly low-priced financing schemes like LTFF ETF, (3) fixed and concessionary energy tariff, and (4) export rebates among others.
However, as of now, no major incentives are available to textiles in country, hence we believe their valuation multiple should gradually revert to market multiple/premium.
Key Risks: (1) any removal of the GSP+ status given to Pakistan for exports to EU, (2) Higher than expected inflation/minimum wage increase (3) removal of the concessionary financing granted by central bank, (4) US tariffs impact on Pakistan and (5) any slow down in global economic activities.
