Equity Analysis /
Pakistan

Pakistan Textiles: April 2022 – Exports clock in at a record high

  • Pakistan’s textile exports in April’22 grew by a handsome 30% yoy and 7% mom to US$1.7bn (highest exports in FY22)

  • Exports of the value-added segment surged by an average 35% yoy; imports remained rose by 20% yoy to c.US$0.4bn

  • We have an Overweight stance on the sector, preferring ILP (TP PKR109/sh) and GATM (TP PKR61/sh) as our top picks

Abdul Ghani Mianoor
Intermarket Securities
16 May 2022

Pakistan’s total exports in April 2022 clocked in at US$2.9bn (the second highest level in FY22), up a sharp 31% yoy and 4% mom, and sustaining above the US$2.6bn level since November 2021. This took 10MFY22 exports to US$26bn, up 26% yoy.

Textile exports led the sharp growth, rising by 30% yoy and 7% mom to US$1.7bn – the highest monthly exports in FY22 – sustaining above the US$1.5bn level since October 2021. This took 10MFY22 exports to US$16.0bn (record 10M total). The robust growth is a testament to the strong demand for Pakistan’s textiles in the global market.

Key highlights in Textile exports

  • The impressive yoy growth in exports is due to (i) strong demand ahead of the Summer season in the West, (ii) competitive utility rates, and (ii) US-China trade rift, which continues to favor Pakistan, in our view.

  • Cumulative exports of value-added segments in April rose by a handsome 35% yoy (average), led by the Readymade Garments and Knitwear segments. In terms of volumes, that of Readymade Garments increased by a sharp 75% yoy (low base due to depressed demand as lockdowns prevailed in the West), while that of Knitwear remained flat yoy.

  • Overall Textile imports increased by 20% yoy (flat mom) to US$0.4bn in April, led by raw cotton imports. Textile machinery imports remained flat yoy, likely due to fulfillment of TERF orders, in our view.

Outlook

We highlight that Textile export growth is likely to remain strong in the upcoming months due to the continued rerouting of orders out of China. Also, the surge in freight charges on shipments of unfinished products to competitors like Bangladesh is likely to fare well for Pakistan, as various brands have started routing orders to Pakistani exporters in order to arrest thinning margins, in our view.

According to channel checks, demand for value-added products is likely to remain intact, as orders have been booked for at least the next 3mths, while procurement of cotton at lower than prevailing rates is likely to result in sustained strong margins for the remainder of FY22. However, the ongoing Russia-Ukraine issue has led to a surge in global inflation, which if prolonged, may potentially lead to a moderate slowdown in export growth (as seen during the period which followed the global financial crisis). We retain our Overweight stance on the sector, preferring ILP (TP of PKR109/sh) and GATM (TP of PKR61/sh) as our top picks.