Karachi: In a notable financial update, VIS Credit Rating Company Limited (VIS) has raised the credit ratings of Interloop Limited (ILP) from 'A+/A-1' to 'AA-/A-1', signaling a robust improvement in the company's financial and operational stability. This upgrade reflects a strong credit quality with a stable outlook, acknowledging ILP's enhanced capacity for meeting both long-term commitments and short-term obligations.
According to VIS Credit Rating Company Limited, the upgraded long-term rating of 'AA-' illustrates high credit quality with strong protection factors, albeit with modest risk that could fluctuate due to economic conditions. The short-term rating of 'A-1' points to a strong likelihood of timely repayment of financial obligations, bolstered by excellent liquidity factors. This reassessment follows a previous rating action announced on May 10, 2023.
Interloop Limited, a key player in the textile sector on the Pakistan Stock Exchange, is recognized for its extensive operations that span across Hosiery, Denim, Knitted Apparel, and Seamless Activewear. Catering to a global clientele including major brands and retailers, ILP has established a significant market presence in several key regions including the Netherlands, China, Japan, the USA, and Sri Lanka, and employs over 35,000 individuals.
The assigned ratings reflect the inherent risks within the textile industry, characterized by economic cyclicality and intense competition. These factors include susceptibility to demand shifts influenced by broader economic trends, exposure to global market fluctuations, geopolitical challenges, and liquidity issues related to the delay in sales tax refunds. Additionally, dependencies on local cotton production and imported raw materials expose the sector to significant currency exchange risks.
The rating upgrade also considers ILP's strategic initiatives, including capacity expansions in the apparel segment approved by the board and diversification efforts aimed at broadening the revenue base. In FY23, ILP achieved a landmark by crossing the Rs. 100 billion sales threshold, recording revenues of Rs. 119.2 billion—a 31% growth over the previous year. This financial growth was accompanied by improvements in both gross and net profit margins.
Financially, ILP has strengthened its equity base to Rs. 43.8 billion, supported by robust internal cash flows. Despite an increase in total debt to Rs. 59.6 billion, the company showed marginal improvements in gearing and leverage ratios. Additionally, the Debt Service Coverage Ratio (DSCR) remained healthy above 4.5x in FY23, reflecting an adequate liquidity profile.