Interloop's Credit Rating Holds Firm as Cotton Prices and Tariff Uncertainty Bite

KARACHI: VIS Credit Rating Company reaffirmed Interloop Limited's entity ratings at 'AA-/A1', holding the outlook at 'Stable' even as the company works through a stretch of margin pressure, rising leverage and mounting external risk.

VIS assigns 'AA-' to companies it considers high credit quality with strong protection factors, though it flags that risk can still shift with economic conditions. The 'A1' short-term rating signals a strong likelihood of timely repayment, underpinned by excellent liquidity, a distinction that matters for a company juggling operations across six countries.

Why Interloop Carries Outsized Weight

Interloop owns manufacturing units located in Pakistan and Sri Lanka, a sourcing facility in China, and marketing offices located across the United States, Europe and Japan. The company has a workforce of nearly 40,000 employees belonging to 15 different nationalities. The company’s hosiery, denim, knitwear, seamless activewear and yarn division supplies to a clientele of large retail outlets, with its United States based subsidiary operating a manufacturing facility in Shanghai, with its registered office located in Pennsylvania.

That footprint explains why a single rating action from a Karachi-based agency carries weight far beyond Pakistan's borders. Interloop's fortunes ride on cotton markets it doesn't control and on trade policy it doesn't set.

The Numbers Behind the Stable Label

VIS's reaffirmation doesn't paper over a rough patch. Consolidated profitability fell during FY25 as Interloop's apparel segment absorbed margin compression while it scaled up production a common growing pain for manufacturers pushing into new product categories, but one that shows up directly in the bottom line. VIS reports profitability has started climbing back during the first nine months of FY26.

Read More: Interloop On Track for Earnings Turnaround as Capacity Expansion Gains Momentum

Leverage told a similar story. Heavy capital expenditure tied to expansion projects pushed debt levels higher during FY25. VIS now says capitalization indicators improved during 9MFY26 as those same projects neared completion and debt started to moderate. Liquidity held up throughout, and debt and cash flow coverage metrics stayed strong, according to the agency.

Hosiery still generates the bulk of Interloop's earnings, even as the company leans harder into denim and apparel to spread its revenue base across more categories a diversification bet that, on this evidence, is costing money before it pays off.

Cotton and Tariffs: The Risks VIS Won't Ignore

VIS didn't reaffirm the rating without a warning attached. The agency names two external forces as the biggest threats to Interloop's financial resilience going forward: fluctuating global cotton prices and evolving U.S. tariff policies. Neither risk sits within management's control, and both hit directly at a company that earns a substantial share of its revenue from American and European retail clients.

For a textile exporter of Interloop's scale, a stable rating isn't a headline in itself. It's a signal that the balance sheet held together through a genuinely difficult year of margin compression and rising debt while the two biggest tests, cotton prices and tariff policy, remain unresolved and outside the company's control.