Equity Analysis /

Pakistan Textiles: April 2021: Slight fall in exports amid Ramadan seasonality

  • Pakistan’s textile exports fell slightly (1% mom) in April 2021 to US$1.4bn, up a sharp 3x yoy (distorted by Covid-19)

  • The exports of the value-added sector rose by an average 3% mom, led by the Knitwear segment (up 10% mom)

  • We are Overweight on the sector with Buy ratings on all scrips

Intermarket Securities
21 May 2021

Pakistan’s total exports in April 2021 clocked in at US$2.2bn, down 6% mom and 2x yoy (distorted due to Covid-19 lockdown last April). This took total exports in 10MFY21 to US$20.9bn (up a sharp 13% yoy)

Textile exports (about 60% share in overall exports) were flattish mom at c. US$1.3bn in April (up 3x yoy). Total textile exports in 10M thus reached US$12.7bn, up 17% yoy.

Key Highlights in Textile exports

The slight mom decline (1%) is due to the reduced working hours during the month of Ramadan (since mid-April), and increase in restrictions, in our view. We expect exports can rise from present levels in the coming months, ahead of the Summer season in the West (tourism gradually resuming in the EU amid waning infection rate).

Cumulative exports of value-added segments were up by 3% mom (on value basis), led by the rise in Knitwear exports (up 10%). However, Readymade garment exports fell 5% mom (likely due to decline in per unit prices). In terms of volumes, however, double-digit growth was witnessed in Readymade garment exports, while that of Knitwear and Bedwear rose by a relatively softer c.5% mom (suggesting price increases in this category). Cotton yarn exports fell by a modest 5% mom potentially due to the recent volatility in global cotton market, which was caused by the US-China trade rift.

Overall Textile imports in April fell by 6% mom to c.US$0.40bn, where raw cotton imports decreased mom to the tune of US$0.16bn – suggesting strong exports order flows for the rest of 2021 (also corroborated by industry sources).   

We believe that the demand for Pakistan’s textiles globally is likely to remain strong on the back of potential rerouting of orders out of China (reduced trade dependency and Xinjiang cotton issue), while the surge in Covid-19 cases across competing Asian countries is likely to favour Pakistan. The sector is likely to show sustained exports growth hereon, due to continued government incentives (including the upcoming Policy that is pending approval) and extensive BMR projects. However, following the recent resolution passed by the EU Parliament to review Pakistan’s GSP+ Status, a potential revocation is a key threat to exports (as it will make Pakistan’s textile exports less competitive against that of Bangladesh).

We reiterate our Overweight stance on the sector, with a Buy rating on NML (TP of PKR132/sh), GATM (TP of PKR75/sh), NCL (TP of PKR70/sh) and ILP (TP of PKR80/sh).