Equity Analysis /
Pakistan

Pakistan Textiles: March 2022 – Strong yoy growth momentum sustained

  • Pakistan’s textile exports in March’22 grew by a handsome c.20% yoy to US$1.6bn (third highest exports in FY22)

  • Exports of the value-added segment surged by an average c.25% yoy; imports remained rose byc.10% 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
18 April 2022

Pakistan’s total exports in March 2022 clocked in at c.US$2.8bn, up a sharp 18% yoy (though flat mom), sustaining above the US$2.6bn level since November 2021.

Textile exports led the sharp growth, rising by 20% yoy, but down 4% mom, to c.US$1.6bn – the third-highest monthly exports in FY22 – sustaining the US$1.5bn level since October 2021. This took 9MFY22 exports to c.US$14bn (record 9M 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, and (ii) continued growth in retail textile sales in the US and EU (up c.30% yoy during 9MFY22 in the US). Also, competitive utility and borrowing rates, as well as the continued US-China trade rift, continue to favor Pakistan, in our view.

  • Cumulative exports of value-added segments rose by a handsome c.25% yoy (average), led by the Knitwear and Readymade Garments segments (up c.35% yoy). In terms of volumes, that of Readymade Garments increased by a sharp c.90% yoy (low base due to depressed demand as lockdowns prevailed in the West), while that of Knitwear decreased by c.20% yoy.

  • Overall Textile imports increased by c.10% yoy and c.20% mom to c.US$0.4bn, led by synthetic yarn imports, whereas raw cotton imports declined by c.5% yoy. Textile machinery imports decreased by c.20% yoy.

Outlook

We highlight that the healthy Textile exports growth is likely to remain strong for the remainder of FY22 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 exports growth (as seen during the period which followed the global financial crisis). That said, the present rerouting of orders from competing countries is likely to offset any export growth headwinds, in our view. We therefore reiterate our Overweight stance on the sector, preferring ILP (TP of PKR109/sh) and GATM (TP of PKR61/sh) as our top picks.