Foundation Research raises Dec 24 Interloop target price to Rs. 109.5

Strategic Expansion and Investment

Interloop, a leading textile company and top socks manufacturer globally, is highlighted as the most attractive textile company in Pakistan. Several factors contribute to this assessment:

1. Expansion into Apparel and Denim: Interloop is diversifying its product range by expanding into apparel and denim production.
2. Significant Investment Plans: The company has committed to investing $300 million through 2026 to support its growth.
3. Strong Financial Performance: Interloop boasts industry-leading profit margins and return on equity (ROE), with an expected average ROE of 36% from FY24 to FY27 and a 3-year earnings compound annual growth rate (CAGR) of 25%.
4. Innovative Projects: The company continues to innovate with experimental projects.
5. Diverse Customer Base: Interloop serves top designers and retailers worldwide.

Earnings Growth through Diversification

Interloop aims to achieve its Vision 2025 goal of becoming the preferred clothing partner for families and reaching $700 million in revenue by FY26. Key initiatives include:

• Apparel Expansion: Investing $100 million in eco-friendly apparel production, increasing annual capacity to 25 million garments.
• Denim Production: Doubling its denim facility’s capacity to 12 million pieces per year by FY25.

Market and Product Expansion

Interloop is also expanding its market presence and product offerings:

• Acquisition: Acquired a 64% stake in a US-based hosiery manufacturer with a subsidiary in China.
• Denim Fabric Mill: Setting up a denim fabric mill and increasing spinning and yarn dyeing capacity.
• Hosiery Line Expansion: Accelerated the expansion of its sixth hosiery line to FY24.

Performance and Outlook

Interloop’s recent performance supports its ambitious expansion plans, with notable growth in revenue and profit:

• Revenue Growth: 3-year CAGR of 49% and 5-year CAGR of 31%.
• Net Profit Growth: 3-year CAGR of 124% and 5-year CAGR of 39%.

Earnings Revision

Interloop’s earnings per share (EPS) for FY24, FY25, and FY26 have been revised down by 26%, 10%, and 9% respectively, due to updated results and lower profitability.

Price Catalyst and Risks

• Target Price: Dec’24 target price is Rs109.5 per share, based on discounted cash flow (DCF) methodology.
• Catalysts: Successful pilot projects of new products and a decline in interest rates.
• Risks: Potential slowdown in export markets, loss of key clients, and rising energy prices.

Investment Fundamentals

Year End	Net Revenues (m)	EBITDA (m)	EBITDA Growth (%)	PBT (m)	Net Profit (m)	EPS (Rs)	Revenue Growth (%)	EPS Growth (%)	PE (x)	DPS (Rs)	Dividend Yield (%)	ROA (%)	ROE (%)	EV/EBITDA (x)	Net D/E (x)	Price to Book (x)	Price to Sales (x)
2023A	119,200	30,325	62.2	21,584	20,172	14.4	31.1	63.2	5.8	5.0	6.0	18.2	54.7	5.8	1.3	2.7	1.0
2024E	152,313	34,194	12.8	19,877	17,949	12.8	27.8	(11.0)	6.5	4.0	4.8	13.1	36.4	5.4	1.2	2.1	0.8
2025E	187,777	38,130	11.5	28,686	25,904	18.5	23.3	44.3	4.5	5.7	6.9	16.4	39.9	4.7	0.8	1.6	0.6
2026E	207,767	42,585	11.7	33,546	30,293	21.6	10.6	16.9	3.9	6.7	8.0	17.6	35.2	3.8	0.5	1.2	0.6

Conclusion

Interloop’s strategic expansions into apparel and denim, alongside its robust financial performance and diverse customer base, position it as a strong performer in the textile sector. The stock is rated “Outperform” with a Dec 2024 target price of Rs 109.5 per share, reflecting a 30.6% upside.

Disclaimer:

The information in this article is based on research by Foundation Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.