Equity Analysis /
Pakistan

Pakistan Textiles – Record exports in December 2020!

  • Pakistan’s textile exports ended 2020 with an all-time record high of US$1.4bn in December

  • Despite the lockdowns in Europe, exports for the Knitwear, Home Textiles and Garments collectively rose 7% mom

  • We have an Overweight stance on the sector with Buy ratings on NML (TP of PKR132/sh) and ILP (TP of PKR80/sh)

Intermarket Securities
18 January 2021

Total exports in December 2020 clocked in at US$2.4bn compared to US$2.2bn in November, up 8% mom and 18% yoy. This took total exports in 1HFY21 to US$12.1bn (up 5% yoy).

Textile exports (about 60% share in overall exports) clocked in at an all-time record of US$1.4bn in December – up 9% mom and a sharp 23% yoy. Pakistan’s textile exports outperformed both India (down 13% yoy in December in terms of readymade garments and made-ups) and Bangladesh (readymade garments down 3% yoy during 1H). Total textile exports in 1HFY21 thus reached US$7.4bn (up 8% yoy) from US$6.9bn in 1HFY20.

Key factors behind the rise in Textile exports

The rise in exports, despite the reinstatement of lockdowns in Europe, may be attributed to the strong order flows for the Spring season (March) and the rerouting of orders from competing countries, in our view.

In terms of value, the exports of knitwear, home textiles and readymade garments collectively were up by 7% mom, led by the strong growth in readymade garments (up 10% mom). In terms of volumes, that of the value-added group rose by 10% mom on average. On a yoy basis, the group’s exports were collectively up an average 16% yoy (value), while volumes of readymade garments declined by 35% yoy, which may be due to a shift from basic cotton garments to garments consisting of more man-made fibers, in our view.  

Textile imports, in the same vein, rose by 19% mom to US$0.4bn, while up a sharp 2.1x yoy. For instance, raw cotton imports increased by a sharp c.80% mom and c.6.5x yoy, which is due to the significant shortfall in domestic cotton production. The data suggests healthy order flow for the rest of FY21, despite the present second wave and lockdowns in many key markets.  

According to channel checks, exports are likely to increase in the coming months, due to the inlay of export orders till March (ahead of summer holidays in Europe and the US). Near-term, the demand for home textiles will remain stronger than that of readymade garments, because the second wave across Europe and US will keep high-street sales at subpar levels, in our view. However, despite the holiday season, US Retail sales witnessed a flattish mom rise in clothing sales (seasonally adjusted 16% yoy decline). A similar trend was witnessed in the UK, which has imposed a lockdown since November 2020. However, a sharp overall rise in online sales was recorded, which is likely to continue during 2021, in our view.

IMS Textile Universe is up 15.2% in the past three months. The above export performance illustrate that the Textile sector has withstood pressures from the Covid-19 lockdowns, as exports have grown faster than before the pandemic. We believe that the sector is likely to demonstrate similar growth in future, thanks partly to government incentives (including the upcoming Policy) and global trends favoring Pakistani exporters. The new Textile Policy, which is awaiting final approval from the ECC, will help cement long-term competitiveness of the sector, in our view. We thus reiterate our Overweight stance on the sector, with a Buy rating on NML (TP of PKR132/sh) and ILP (TP of PKR80/sh).