Total exports in January 2021 clocked in at US$2.1bn compared to US$2.4bn in December, down 9% mom while up 8% yoy. This took total exports in 7MFY21 to US$14.2bn (up 5% yoy). Textile exports (about 60% share in overall exports) declined for the first time since November, clocking in at US$1.3bn in January – down 6% mom (while up 11% yoy). Pakistan’s textile exports, however, outperformed both India (down 11% yoy in January in terms of readymade garments) and Bangladesh (readymade garments down 5% yoy during 7MFY21). Total textile exports in 7M thus reached US$8.8bn (up 8% yoy) from US$8.1bn in SPLY.

Key factors behind the rise in Textile exports

The decrease in exports is seemingly due to the seasonal trend, where exports tend to be slow in January and February, before picking up before the Spring and Summer seasons, in our view. We expect exports to remain steady despite the prolonged lockdowns in the major exports destinations (Europe and the US).

In terms of value, the exports of knitwear, home textiles and readymade garments collectively were down by 7% mom, led by a drag from the bedwear segment, while readymade garments remained flattish mom. In terms of volumes, that of the knitwear and bedwear fell by 18% mom on average; volumes for readymade garments and towels rose 5% mom. On a yoy basis, the group’s exports were collectively up an average 21% yoy (value), while volumes of readymade garments declined by 15% yoy, which may be due to the global shift from cotton based garments to that consisting of more man-made fibers, in our view.

Textile imports in January declined by a mere 2% mom, to US$0.39bn, while up a softer 35% yoy (compared to recent months). For instance, raw cotton imports increased by c.20% mom and c.70% 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 for the remainder of FY21 (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, despite the vaccine roll out.

The above performance illustrate that the Textile sector has not only withstood pressures from the Covid-19, but has grown exports faster than before the pandemic, where the exports have averaged at US$1.3bn (excluding August 2020, which was a one-off due to the monsoon rain and unusual number of holidays). We believe that the sector is likely to demonstrate similar growth in future, thanks partly to government incentives (including the upcoming Policy that is pending approval) and global trends favoring Pakistani exporters (as seen from the regional comparison earlier). The new Textile Policy is likely improve the long-term competitiveness of the sector, in our view. We thus reiterate our Overweight stance on the sector, despite the 36% rally in the past three months, with a Buy rating on NML (TP of PKR132/sh) and ILP (TP of PKR80/sh).

Courtesy –  Intermarket Securities Limited.