Equity Analysis /

Pakistan Textiles: December 2021 - Ending the year with stellar growth

  • Pakistan’s textile exports rose by a handsome c.15% yoy, sustaining the US$1.6bn level since October 2021

  • Exports of the value-added segment increased by an average c.25% yoy, led by Knitwear (up c.35% yoy)

  • We reiterate our Overweight stance on the sector, preferring ILP (TP PKR115/sh) and GATM (TP PKR70/sh) as our top picks

Intermarket Securities
18 January 2022

Pakistan’s total exports in December 2021 clocked in at US$2.8bn, up a sharp c.20% yoy from US$2.4bn, sustaining the US$2bn level since June 2021 (though down c.5% mom).

Textile exports led the sharp growth, rising by c.15% yoy (down c.5% mom), to US$1.6bn – sustaining the momentum since October. The robust growth is a testament to the strong demand for Pakistan’s textiles in the global market, despite the resumption of normal economic activity in competing countries.

Key highlights in Textile exports

  • The impressive yoy growth in exports is due to strong pent-up demand ahead of the Spring/Summer season in the West and due to shortages at various retail brands, in our view. Other factors favoring Pakistan include (i) competitive pricing made possible by extended government incentives, and (ii) US-China trade rift, in our view.

  • Cumulative exports of value-added segments increased by an average c.25% yoy, sequentially led by the Knitwear segment (up c.35% yoy). But, in terms of volumes, that of Bedwear decreased by c.15% yoy, while that of Knitwear rose c.5% yoy. We highlight that overall volumes have decreased by an average c.10%, while per unit prices have increased by c.25% yoy (excluding yarn rates).

  • Overall Textile imports remained flat yoy, sustaining the US$0.4bn level. Cotton imports remained flat yoy in December, while volumes declined by c.30% yoy.

The demand for Pakistan’s textile exports is likely to remain strong due to continued rerouting of orders out of China and regional countries. The capital investments by various textile exporters is also an indication of strong order flows (machinery imports up c.50% yoy), while exports’ competitiveness is enhanced by the recent c.10% PKR depreciation FY22td.

We highlight that the strong demand for value-added products (orders booked for at least the next 3-6mths) and procurement of cotton at lower than prevailing rates, are likely to result in strong revenues and profitability for the remainder of FY22. We therefore reiterate our Overweight stance on the sector, while preferring the companies with more value-added sales over the Spinners. ILP (TP of PKR115/sh) and GATM (TP of PKR70/sh) are our top picks.