Interloop: Spinning Gold from Cotton
How a Faisalabad sock maker became one of the world’s largest hosiery suppliers, and why the market still prices the country it lives in rather than the franchise it has built
Executive Summary
Interloop Limited is, by most measures, the most successful manufacturing export business Pakistan has produced in the modern era. It began in 1992 with ten knitting machines bought from Italy and a few million rupees of family money. Today it ships hundreds of millions of pairs of socks a year to Nike, Adidas, Puma, H&M, Target, M&S, Zara and Levi’s, runs denim and apparel plants across a large industrial park near Lahore, employs more than thirty-seven thousand people, and is the only Pakistani textile company ever admitted to the MSCI frontier-markets index. Revenue reached about PKR 179 billion in the year to June 2025, having compounded at roughly a third a year in rupee terms since 2021.
The single most useful way to think about the stock is this. Interloop is not really a Pakistani textile company that exports. It is a global apparel-supply franchise that happens to be domiciled in Pakistan, and the market mostly prices the domicile rather than the franchise. That gap is the entire investment question. The outside-in research in this memo broadly supports that reframe, but with two material qualifications the company’s own materials understate, set out below.
The case is not simple. The same year revenue hit a record, net profit fell about two-thirds to PKR 5.65 billion, the dividend was cut by nearly eighty percent, return on equity dropped from the mid-fifties into single digits, and total debt that had roughly tripled in four years to over PKR 90 billion suddenly looked heavy against a thinner stream of earnings. For a moment the textbook compounder looked like a textbook warning about debt-funded growth meeting higher interest rates and a hostile tax change. Both pictures are real, and the truth sits in the tension between them.
The early evidence from late 2025 into 2026 is that the durable advantages are outlasting the cyclical pain. First-half profit to December 2025 rose roughly fourfold to about PKR 5.9 billion, gross margins widened, finance costs eased, and the company paid its first interim dividend in two years. On trailing twelve months the business now earns around PKR 10 billion, and the trailing multiple has compressed back toward the low teens. The recovery looks cyclical rather than structural, but the share has already moved to anticipate it, so the easy money has probably been made.
Two qualifications the bull case must absorb. First, the industry tailwinds Interloop cites are weaker and more two-sided than presented. McKinsey’s buyer surveys put Bangladesh, India and Vietnam, not Pakistan, at the top of brands’ sourcing-growth plans; H&M and Inditex have been shifting Pakistani volume toward Vietnam and Bangladesh; and Bangladesh, far from being in structural retreat, grew garment exports ~9% in FY25 and is on track to cross US$50 billion in 2026, with more LEED-certified green factories than any country on earth. Interloop has been winning orders the wider Pakistani industry has not, which makes the company a genuine outlier, but the rising tide it invokes is, at the macro level, lifting its competitors faster. Second, Pakistan’s policy drag is structural, not a one-off. The 2025 tax shock that gutted earnings is not reversing: the sector still carries an effective tax burden the trade bodies put near 68%, industrial power costs roughly 80% above India’s, and over PKR 320 billion of refunds remain stuck. The FY26–27 budget is widely expected to leave the export tax regime broadly intact.
Set against that, the company-quality evidence is strong and corroborated from the customer side. Independent peer data confirm that scaled, vertically integrated, audited suppliers earn structurally higher and steadier margins (Shenzhou ~19% net, Eclat ~21% operating) and trade at clear premiums; that brands are consolidating volume into fewer strategic vendors; and that Interloop’s seat on Nike’s sustainability council is the kind of status that does not move on price. The franchise bent in 2025; it did not break, and it is already recovering, the signature of a durable business.
The verdict is unchanged in direction but narrower in size than the original draft implied. Interloop has built something durable, and the market still prices a country rather than the company. But the deep discount that made the stock a near-automatic buy in the 2023 crisis has largely corrected; consensus targets clustering around PKR 90–110 imply solid rather than spectacular upside; and the remaining return is conditional on the apparel ramp filling, deleveraging continuing, and a policy environment that is manageable rather than friendly. The single variable that links the whole thesis is capacity utilisation at the apparel park. Watch it above all else.
