Equity Analysis /
Pakistan

Pakistan Textiles: Mar'21 – Exports rebound following end of seasonal slowdown

  • Pakistan’s textile exports rebounded in March 2021 to US$1.4bn, up 10% mom and 30% yoy (distorted by Covid-19)

  • The exports of the value-added sector rose by an average 6% mom, led by the Bedwear segment (up 16% mom)

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

Intermarket Securities
19 April 2021

Total exports in March 2021 clocked in at US$2.4bn, up 14% mom and 30% yoy (albeit from a low base, due to the Covid-19 lockdown last March). This took total exports in 9MFY21 to US$18.6bn (up 7% yoy).

Textile exports (about 60% share in overall exports) rose 10% mom to c. US$1.4bn in March (up 30% yoy but distorted by Covid-19). Total textile exports in 9M thus reached US$11.4bn (up 9% yoy) from US$10.4bn in SPLY.

Key factors behind the rise in Textile exports

The sharp mom increase is seemingly due to the end of slow demand in the first two months of the year, before picking up ahead of the Spring and Summer seasons, in our view. We expect exports to remain healthy around present levels despite the onset of the third wave in the West (particularly Europe).

Cumulative exports of value-added segments were up by c.30% mom (on a value basis), led by the rise in Bedwear exports. In terms of volumes, double-digit growth was also witnessed in the Knitwear segment, along with Bedwear (up c.25% mom), while that of readymade garments declined by 11% mom. Cotton yarn exports fell by a modest 5% mom potentially due to the volatility in the global cotton market during the month, largely attributed to the US-China trade rift.

Textile imports in March rose by a notable 12% mom to c.US$0.40bn. The increase in raw cotton imports to the tune of US$0.16bn is attributed to strong order flows, amid a significant shortfall in domestic cotton production during FY21TD.   

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 (Xinjiang cotton issue) and several other Asian competitors, due to the resurgence of Covid-19 cases. The sector is likely to demonstrate sustained export growth thereon, due to continued government incentives (including the upcoming Policy that is pending approval). The recent c.5% PKR appreciation will clip margins and lead to exchange losses for value-added exporters; but, given the broader global landscape, we understand it has not yet affected the competitiveness of Pakistan’s exports.

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).