Equity Analysis /
Pakistan

Pakistan Textiles: Sales volume update

  • Pakistan’s textile exports in May’22 grew by a handsome 55% yoy (down 6% mom) to US$1.6bn

  • Exports of the value-added segment surged by an average 56% yoy; imports rose by 20% 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
17 June 2022

Textile exports continue to grow sharply, rising by 55% yoy to US$1.6bn, sustaining above the US$1.5bn level since October 2021. Although the robust growth in exports is attributed to orders placed in anticipation of strong summer demand, the sequential decline is due to gas shortages and Eid festivities during the month, in our view. This took 11MFY22 exports to US$17.6bn (up 28% yoy). We expect FY22 textile exports to clock in at US$19.2bn.  

Overall, Pakistan’s total exports in May 2022 also grew sharply by 57% yoy to US$2.6bn. The country’s overall exports have sustained above the US$2.6bn level since November 2021, taking 11MFY22 exports to a record high of US$28.9bn, up 28% yoy.

Key Highlights

  • Cumulative exports of value-added segments in May rose by a handsome 56% yoy (average), led by the Readymade Garments and Bedwear segments. In terms of volumes, that of Readymade Garments increased by a sharp 73% yoy (low base due to depressed demand as lockdowns prevailed in the West), while that of Knitwear remained flat yoy.

  • Overall Textile imports increased by 20% yoy (up 4% mom) to US$0.4bn in May, led by raw cotton imports. We highlight that cotton volumes increased by 39% yoy amid surge in textile demand. Textile machinery imports remained declined by 20% yoy, likely due to fulfilment of TERF orders, in our view. 

Outlook

We highlight that Textile exports growth is likely to remain strong in the coming month amid strong order books, due to the continued US-China trade rift. According to channel checks, demand for Hosiery and other value-added products such as garments are likely to remain intact in the near-term. The procurement of cotton at lower than prevailing rates is likely to result in strong margins in the coming quarters. However, ongoing global monetary tightening to contain inflation may potentially lead to a significant moderation in exports growth (as seen during the period which followed the global financial crisis), where Home Textiles segment demand is likely to falter the most, in our view. Also, the piling up of inventory at major retailers such as Target and Walmart (among others) will likely lead to a moderate slowdown in exports (in terms of revenue) during FY23, in our view. We retain our Overweight stance on the sector and continue to prefer ILP (TP of PKR109/sh) and GATM (TP of PKR61/sh) as our top picks.