Pakistan’s total exports in October 2021 clocked in at US$2.5bn, up c.20% yoy from US$2.1bn, sustaining the US$2bn level since June 2021, while up a modest 2% mom.
Textile exports led the sharp growth, rising by c.25% yoy (up 8% mom), to US$1.6bn – the level reached for the second time since June 2021. The handsome growth is a testament to the strong demand for Pakistan’s textiles in the global market, despite the resumption of economic activities in competing countries. We highlight that shipment of orders for the Winter holidays are concentrated in October, where a similar mom rise in exports was witnessed last October as well.
Key Highlights in Textile exports
The impressive yoy exports is due to the conducive global backdrop favoring Pakistan, in our view, amid (i) competitive pricing made possible by extended government incentives, (ii) US-China trade rift, and (iii) continued rerouting of orders to Pakistan from other competing Asian countries. The vaccination rates in the West will further continue the present growth momentum, in our view, sustaining high-street retail sales.
Cumulative exports of value-added segments increased by an average 25% yoy, led by the Knitwear segment (up c.40% yoy). But, in terms of volumes, those of Knitwear and Towels decreased an average c.15% yoy, while those of Readymade Garments and Bedwear rose c.15% yoy.
Overall Textile imports continued the sharp yoy rise in October, sustaining the US$0.4bn level, led by the sharp rise in cotton imports (up c.80% yoy) largely due to a rise in global cotton prices to an average US¢117.60 in October 2021 (up c.60% yoy), while volumes rose a softer c.30% yoy.
The demand for Pakistan’s textile exports is likely to remain strong due to continued rerouting of orders out of China and other regional Asian countries. The capital investments by various textile exporters is also an indication of strong order flows (machinery imports up c.40% yoy), while exports’ competitiveness is also enhanced by the recent c.10% PKR depreciation FY22td and continued rationalization of imports tariffs on raw materials. The government recently announced an increase in RLNG rates to US$9/mmbtu for the sector (until 31 March 2021), from US$6.5/mmbtu amid rise in global RLNG prices. We estimate RLNG cost to average c.US$7.40/mmbtu for FY22, leading to an average c.0.4ppt reduction in overall margins for the sector.
We highlight that the strong 1Q results posted by the sector on the back of strong revenues and profitability may be a key indicator for the remaining Textile earnings in the coming quarters, as various companies have booked orders for the next 3-6 months. We therefore reiterate our Overweight stance on the sector, with a Buy rating on all scrips under coverage.
Courtesy – Intermarket Securities Limited