Equity Analysis /
Pakistan

Pakistan Textiles: Exports witness highest slump since Feb’21; headwinds in FY23

  • Latest Textile exports print of USD1.48bn indicates a slowdown in growth to a mere 1% YoY, lowest growth since Feb’21

  • Production constraints owed to curtailment of gas, Eid holidays and monsoon led to the dismal exports performance

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

Intermarket Securities
17 August 2022

Latest Textile exports print of USD1.48bn indicates a slowdown in growth to a mere 1% YoY (down 13% MoM), lowest growth since Feb’21. Inadequate energy availability (first week) and less than optimal supply during the remainder of the month, Eid holidays, as well as monsoon rain led to the sharp slowdown. Although exports are likely to improve in the ongoing month, headwinds remain at large, in terms of, i) sobering demand from global slowdown, ii) volatility in cotton prices due to PKR and weather, 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 lack of energy supplies for both captive plants and processing (first 9 days) primarily led to the slowdown in exports growth (slowest since Feb’21), whereas on absolute terms, Jul’22 print clocked in at an 11month low. Extended Eid holidays and monsoon rain also led to the decline. 

  • Lower Home Textile production (Bedwear and Towels), coupled with a decline in realized prices of Readymade Garments, and dwindling yarn exports dragged down the growth momentum. Knitwear exports continued to remain strong as both prices and volumes increased, despite production constraints.

  • On the flipside, Textile imports faltered by a sharp 23% YoY (down 24% MoM), despite decent cotton procurement to the tune of USD0.1mn (up 8% YoY). In terms of volumes, cotton imports declined by 21% YoY (prices continue to remain elevated). Restrictions on machinery imports and lack of TERF, led to the 43% YoY slump. 

Moving forward, sector headwinds continue to prevail, in the form of i) fears 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. Also, a visible slowdown in clothing spend growth in the US (corroborated by 0.2% YoY growth in clothing sales in Jun’22) and Europe is likely to result in an overall slowdown in exports in FY23. 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).