Equity Analysis /
Pakistan

Pakistan Textiles: Export rise in Aug’22 amid normalized production

  • Latest Textile exports print of USD1.58bn indicates an 8% YoY growth, recovering from the mere 1% YoY increase in Jul’22

  • Pent-up production following resumption of gas to CPPs and lack of holidays led to the sequential increase in Aug’22

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

Intermarket Securities
15 September 2022

Latest Textile exports print of USD1.58bn indicates an uptick in growth of 8% YoY (+6% MoM), while it remains lower than that of Aug’21 (distorted due to resumption of activities in Aug’20 from the Covid-19 lockdown). Sequentially, the growth is largely due to pent-up production following resumption of utilities and lack of holidays. Despite the recovery in growth, headwinds remain at large, in terms of, i) sobering demand from global slowdown, which has reportedly resulted in the shutting down of smaller mills, ii) volatility in cotton prices due to PKR and floods, iii) higher operating costs and iv) import restrictions by SBP. However, we continue to remain Overweight on the sector, with a preference for ILP as it possesses a strong order book and resilient sales, and GATM owing to aggressive expansion.

  • The resumption of energy supplies for both captive plants and processing, as well as normalized working days amid lack of holidays, primarily led to the rebound in exports. However, on absolute terms, exports in Aug’22 are still lower than the average monthly exports in FY22 by 2.2%.  

  • Greater Knitwear and Readymade Garments production is largely attributed to the increase in exports, whereas, realized prices of both segments decreased by c.30% YoY. Sequentially, production for both segments led the growth in Aug’22, while Home Textile exports continue to struggle. 

  • On the flipside, Textile imports continued to falter compared to the previous year, albeit a slight decline, despite decent cotton procurement to the tune of USD0.15mn (+37% YoY). In terms of volumes, cotton imports declined by 3% YoY (prices continue to remain elevated). Due to the recent floods, cotton imports are likely to rise owing to the devastating impact on cotton harvesting (estimated 3.5mn bales to be imported).  Restrictions on machinery imports and lack of TERF, led to the 30% YoY slump. 

Moving forward, the tragic flood will further add pressure on production in the coming months, while sector headwinds continue to prevail, in the form of i) fear of global slowdown in demand amid high inflation and interest rate hikes, 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. Despite the looming headwinds, we continue to remain Overweight on the sector, reiterating our liking for ILP (TP of PKR109/sh) and GATM (TP of PKR61/sh).