Pakistan’s total exports in June 2021 clocked in at US$2.7bn, up a sharp c.65% mom, while up c.70% yoy (distorted by Covid-19 lockdown last year). This took total exports in FY21 to a record high of US$25.3bn (up c.20% yoy), as per PBS data.

Textile exports surged to a record high as well, of c.US$1.7bn, up c.60% mom and c.75% yoy. Total textile exports in FY21 thus reached US$15.4bn, up c.25% yoy.

Key Highlights in Textile exports

• The sharp mom increase is due to the pent-up demand following two consecutive months of decline on account of reduced working hours during the month of Ramadan and unusually long Eid holidays, in our view. We expect exports to continue its present growth momentum in the coming months, ahead of Winter season holidays (orders expected to rollout from August), and easing of restrictions in the West.
• Cumulative exports of value-added segments were up c.2.5x mom (on value basis). In terms of volumes, however, those of Knitwear nearly doubled mom, while Readymade garments witnessed the lowest growth (up c.20% mom), likely due to the sharp rise in average unit prices (US$).
• Overall Textile imports in June were down 3% mom at c.US$0.40bn, where raw cotton imports rose c.25% mom to the tune of US$0.16bn.

We believe that the demand for Pakistan’s textiles globally is likely to remain strong due to continued rerouting of orders out of China and regional Asian countries such as Bangladesh, which are witnessing a sharp spike in Covid-19 cases. 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. The risk of revocation of the GSP+ Status seems unlikely now. The arrival of the new Textile Policy (likely in August) will further ensure sustained competitiveness of the sector, in our view, and will be another impetus for Textile stocks.

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.