Karachi, Interloop Limited (ILP), Pakistan's second-largest textile exporter and a leading global socks producer, is the subject of a strong investment recommendation. As per a new analysis by JS Global, the company has a promising outlook with a potential 40% upside to its target price of Rs100.

According to JS Global, Interloop's investment appeal stems from its sustained revenue growth, which has shown a compound annual growth rate (CAGR) of 16% over the past five years. This growth is driven by a combination of expansion, outsourcing, and an improved product mix, with the company outsourcing basic products to meet demand while focusing in-house production on value-added items. Despite potential distortions in reported earnings per share (EPS) for FY24E due to currency devaluation and accounting practices, JS Global presents an adjusted view of margins and EPS to highlight underlying growth.

The firm maintains a stable margin outlook for Interloop, expecting it to remain around 30% when excluding exchange gains and depreciation. This is attributed to cost savings, prioritization of higher-margin products, flexible power consumption, and just-in-time inventory management. Financially, Interloop benefits from access to concessionary loans and an anticipated decline in interest rates.

Valued at a price-to-earnings ratio (P/E) of 5x and a price/earnings-to-growth ratio (PEG) of 0.3x for FY25E, Interloop's stock is seen as undervalued given its growth prospects. JS Global's analysis also notes the company's conservative dividend policy, reflecting its strategy to reinvest earnings and lessen commercial debt dependency.