Total exports in November 2020 clocked in at US$2.2bn compared to US$2.1bn in October, up 3% mom and 8% yoy. This took total exports in 5MFY21 to US$9.8bn (up 2% yoy). Textile exports (about 60% share in overall exports) clocked in at a record US$1.3bn in November – up 9% yoy (flat mom). They compare well against that of India (down 1% yoy), while Bangladesh’s garments exports fell c.2% yoy in November. Total textile exports in 5MFY21 thus reached US$6.0bn (up 5%yoy) from US$5.8bn same period last year.
Key factors behind the rise in Textile exports
The rise in exports can be attributed to the strong orders for winter season in the West. According to channel checks, we understand that most of the large exporters have orders filled till March 2021, which implies orders for the upcoming spring season.
In terms of value, the exports of knitwear, home textiles and readymade garments collectively were flat mom due to the 4% mom decline in bed wear; however, volumes of knitwear and home textiles rose 5% mom. The group’s exports were collectively up 11% yoy (value).
Textile imports rose by 19% mom to US$0.32bn, while up a sharp 69% yoy – potentially indicating export orders remaining healthy for the rest of FY21, in our view. Raw cotton imports increased by 3% mom and c.5.2x yoy, which is due to the significant shortfall in domestic cotton production. This suggests that the textile companies anticipate healthy order flow ahead, despite the second wave 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 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, US Retail sales witnessed a decline in clothing sales (seasonally adjusted 6.8% yoy), due to the restrictions on movement. A similar trend was witnessed in the UK, which has imposed a lockdown since November 2020.
A new Textile Policy is on the cards which will help improve long-term competitiveness of the sector. A swift rollout of Covid-19 vaccine across 2021 will lift global textile exports to pre-pandemic levels. We thus reiterate our Overweight stance on the sector, with a Buy rating on GATM (TP of PKR50/sh), NML (TP of PKR126/sh) and ILP (TP of PKR80/sh).
(Report by Intermarket Securities Limited.)