Pakistan’s total exports in May 2021 clocked in at US$1.7bn, down 25% mom, while up 20% YoY (distorted by Covid-19 lockdown last May). This took total exports in 11MFY21 to US$23bn (up 14% YoY).

Textile exports fell a sharp c.20% mom to c. US$1.1bn in May (up 41% YoY). Total textile exports in 11M thus reached US$13.8bn, up 19% YoY. We highlight that textile exports are at a record high FYTD (they have never crossed US$14bn).

Key Highlights in Textile exports

The sharp mom decline is due to the reduced working hours during the month of Ramadan (since mid-April), and unusually long Eid holidays (roughly ten days), in our view. We expect exports to rise considerably from present levels in the coming months, as the Summer season kicks off in the West and restrictions are being removed in the EU and North America.

Cumulative exports of value-added segments were down by c.10% mom (on value basis). In terms of volumes, however, over 20% mom decline was witnessed in Knitwear and Bedwear exports, while that of Readymade garments fell by a softer 8% mom (suggesting price decreases in this category, in our view).

Overall Textile imports in May were flattish mom at c.US$0.40bn, where raw cotton imports decreased mom to the tune of US$0.13bn.

We believe that the demand for Pakistan’s textiles globally is likely to remain strong due to continued rerouting of orders out of China (reduced trade dependency and Xinjiang cotton issue). We believe that the capacity enhancements by various textile exporters is an indication of strong order flows, while exports’ competitiveness is also supported by continued rationalization of tariffs on raw materials and power subsidies from the government. However, following the recent resolution passed by the EU Parliament to review Pakistan’s GSP+ Status, a potential revocation is a key threat to exports (as it will make Pakistan’s textile exports less competitive against that of Bangladesh). According to a recent joint press release by the EU and Pakistan, the revocation of the GSP+ status seems unlikely, as Pakistan remains committed in implementing the human rights conventions in accordance with the EU’s terms.

We reiterate our Overweight stance on the sector, with a Buy rating on GATM (TP of PKR63/sh), NML (TP of PKR140/sh), NCL (TP of PKR70/sh) and ILP (TP of PKR90/sh).

Courtesy – Intermarket Securities Limited