In terms of sales and profits FY13 was one of the ‘better years’ for Pakistan’s textile sector, analysts said, adding that this trend looked to continue in FY14.
This trend was also reflected in a more than 100 percent price performance of some of the listed sample textile firms with a market capitalisation of above Rs 250 million in FY13, the analysts added. “Though the energy crisis kept on adversely affecting the industry, especially in the winters, a four-time jump in the profits of the sample was attributed chiefly to the stable cotton prices and solid regional demand,” Topline Research’s Zeeshan Afzal said.
Furthermore, he said that the continuous depreciation of the rupee and cheaper financing also enhanced the profits.
According to Afzal, FY13 remained quite favourable for the textile sector as prices remained stable and floated around $80/lb and additionally, strong yarn and grey cloth demand from the Chinese region provided additional profits.
In FY13 Pakistan exported $13 billion in textile products which was up by 5.9 and 14.7 percent in terms of rupees and dollars, respectively.
“Considerable growth in exports was largely attributed to the imposition of the cotton floor price in China that encouraged Chinese textile manufacturers to import more yarn and grey cloth,” Afzal said.
Textile profitability increased four-fold
As the result of aforementioned factors, the profitability of the textile sample firms improved four-fold to Rs 22.8 billion in 9MFY13 against Rs 4.4 billion in the corresponding period the previous year, Afzal said. “Our broad sample of textile firms (67 companies) included listed textile companies having a minimum of Rs 250million in market capitalisation. However, we omitted Azgard Nine and Indus Dying from the sample due to their abnormal and volatile bottom-line,” the analyst added.
The analyst expected the growth in textile sector exports to continue in FY14 due to continued textile demand from China and estimated an estimated seven percent depreciation of the rupee.
“Although much depended on the international cotton prices, we do not see any major volatility in local cotton prices in FY14…Our supposition comes from preliminary estimates of CCAC (Cotton Crop Assessment Committee) which estimated Pakistan’s cotton production of 13.25million bales in FY14, slightly better than FY13’s 13.0million bales,” he added.
Moreover, the expected GSP Plus status from European Union (EU) and an expected improvement in the energy situation would likely support earnings in FY14, he added.