Interloop Ltd. Reports Substantial Profit Decline Amid Margin Squeeze and Tax Changes

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Lahore: Interloop Ltd. (ILP) has released its financial results for the third quarter of fiscal year 2025, highlighting a significant drop in profitability. The company reported earnings of PkR1.3 billion, or PkR0.95 per share, marking a 68% decrease from the PkR4.1 billion, or PkR2.95 per share, recorded in the same period last year. The decline is attributed to shrinking margins and increased taxation.

Revenue for the quarter rose by 6% year-on-year to PkR41.4 billion, up from PkR39.0 billion in the same period last year. This growth was primarily fueled by increased exports, notably in the Denim and Apparel segments.

Despite the revenue increase, gross margins fell sharply to 20.1% from the previous year’s 29.1%. The contraction was mainly due to lower product prices, higher salary expenses following a rise in the minimum wage, and the elevated costs associated with a new, underutilized apparel line. Quarter-on-quarter, margins remained steady at 20.1%.

Operating expenses also saw an uptick, rising by 11% year-on-year to PkR4.0 billion, driven by higher distribution costs linked to increased export volumes.

Conversely, the company’s finance costs dropped by 22% year-on-year to PkR2.0 billion, benefiting from declining interest rates despite an increase in borrowings.

The effective tax rate surged to 32%, a steep rise from the 12% recorded in the same period last year. This increase is due to a shift from the Final Tax Regime to the Normal Tax Regime.

Cumulatively, the first nine months of fiscal year 2025 saw profitability fall to PkR2.7 billion, or PkR1.93 per share, representing a 79% decline compared to PkR13.1 billion, or PkR9.39 per share, in the same period last year.

AKD Securities Limited maintains a ‘BUY’ recommendation for ILP, with a target price of PkR104 per share for December 2025. The recommendation is based on the company’s potential for growth, supported by its competitive product portfolio and expansions in the Hosiery, Denim, and Apparel segments. Despite short-term challenges, such as potential U.S. tariff impositions, ILP is expected to maintain its long-term growth trajectory due to its favorable market positioning.