AKD Securities Limited Equity Research – Daily Report

Karachi, March 11, 2019 (PPI-OT): Interloop – Stands Strong on Value Added Credentials

Interloop Limited (INLO) – one of the world’s largest hosiery manufacturers – is in process of listing on Pakistan Stock Exchange through Initial Public Offering (IPO), with the book building process scheduled to commence on 13th Mar’19.

The company intends to raise fresh capital of PkR4.9bn or US$35.4mn (at a floor price of PkR45 per share) for 12.5% stake in the company, which it plans to utilize in funding its expansion projects.

Despite challenging domestic backdrop over the last 5yrs, INLO has managed to perform remarkably well, registering stable revenue (4yr CAGR: 8.3%) and profitability growth (4yr CAGR: 15.7%).

The management expects earnings to grow at a 5-year CAGR of 17.5% to reach PKR8.7bn by FY23, as incremental production from new capacity additions would push earnings higher.

At a floor price of PkR45 per share, Interloop appears slightly expensive (IL – trailing P/E: 10.09(x) vs. peer avg. of 8.92(x), 13% premium) when pitted against select group of listed peers on all most every valuation metric.

However, distinguished margin profile (IL – GM: 29.4% vs. 10.7% for AKD Textile Universe), superior asset yields (IL- ROE/ROA: 43%/12% vs. 14%/6% for listed peers) and strong earnings growth (forward 5yr CAGR: 17.5%, management estimates) rightly justify the premium valuations. Hence, we advise investors to subscribe at a floor price of PkR45 per share.

You May Also Like