Equity Analysis /

Pakistan Textile exports dwindle during Sep’22

  • Textile exports in Sep'22 clocked in at USD1.5bn, up a mere 3% YoY (down 3% MoM)

  • Growth in exports on a YoY basis is largely due to the Knitwear and Towels segments

  • We remain Overweight on the sector with a preference for ILP and GATM

Intermarket Securities
18 October 2022

Recent monthly textile exports of USD1.5bn indicate a modest slowdown in growth to 3% YoY (down 3% MoM), significantly lower than the growth witnessed in Sep’21. The slowdown in exports is largely due to possible slowdown in demand, owing to piling up of inventories ahead of winters. However, headwinds remain at large, in terms of, i) sobering demand from global slowdown, ii) volatility in cotton prices, iii) higher operating costs and iv) import restrictions by SBP. However, we continue to remain Overweight on the sector, with a preference for ILP and GATM.

Although the sector had received the required fuels for both captive plants and processing, exports momentum seems to be simmering away. Also, on absolute terms, exports in Sep’22 are still lower than the average monthly exports in FY22.   The growth in exports (although a mere 3% YoY), is largely attributed to the double-digit growth in the Knitwear segment, followed by the high single digit growth in Towels. On the flipside, the realized USD prices of the Value-added segment continued to decline in 1QFY23.   

Textile imports continued to struggle compared to the previous year, declining a sharp 29% YoY, as cotton imports decreased by 8% YoY (volumes down a sharp 35% YoY). Due to the recent floods, we believe that cotton imports should surge in 2HFY23 (estimated 3.5mn bales to be imported).  

Going forward, exports are likely to slump in 2QFY23, due to completion of orders ahead of the Christmas season, before normalizing in 3QFY23, in our view. Sector headwinds continue to prevail, in the form of i) slowdown in demand owing to recessionary fears, ii) volatility in cotton prices, iii) PKR volatility, iv) higher borrowing and energy rates and v) potential delays in expansion projects owed to SBP restrictions on machinery imports. However, we continue to remain Overweight on the sector, reiterating our liking for ILP and GATM.