Total exports in October 2020 clocked in at US$2.1bn compared to US$1.9bn in September, up 11% mom and 4% yoy. This took total exports in 4MFY21 to US$7.6bn (flat yoy). The growth in exports was broad based across all exporting sectors.
Textile exports (about 60% share in overall exports) clocked in at a record US$1.3bn in October – up 6% yoy and 8% mom. They compare well with those of India (down 13% yoy), while Bangladesh’s garments exports fell a modest c.1% yoy in October. Total textile exports in 4MFY21 thus reached US$4.8bn (up 4%yoy) from US$4.6bn.
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, which usually tend to be shipped by mid-October. According to channel checks, we understand that most of the large exporters have orders filled till March 2021.
In terms of value, there was a relatively moderate 9% mom average increase in exports of knitwear, home textiles and readymade garments collectively (vs. 13% on average in the past three months). Volumes also increased by an average 29% mom for knitwear and home textiles, but by a softer 8% mom in case of garments.
Textile imports declined 5% mom to US$0.27bn, while up by a sharp 77% yoy – potentially indicating export orders remaining healthy for the rest of 2020, in our view. Raw cotton imports fell by 7% mom but up c.8.9x yoy, which is due to the significant shortfall in domestic cotton production. Due to the uncertainty around the second wave and fresh lockdowns in Europe, Pakistani textile exporters evidently hesitated from importing cotton during the month despite healthy orders. According to channel checks, only 50% of the cotton requirement for the sector is available in the market (which has led to a 10yr peak in local cotton prices of c.PKR9,500/maund).
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. An appreciating PKR is also a risk factor, but it will be partly offset by lower cost of imported cotton, in our view.
Even though the sector has outperformed the overall KSE-100 index by 3% in November to date, textile stock prices have come under pressure due to the recent PKR appreciation and worsening of lockdown conditions in Europe, while the pandemic continues to rage unabatedly in the US. We think that the PKR appreciation is not sustainable and more positive news on Covid-19 vaccines will lift global textile exports. We thus reiterate our Overweight stance on the sector, with a Buy rating on GATM (TP of PKR50/sh), NML (TP of 126/sh) and ILP (TP of PKR80/sh).
(Intermarket Securities Limited)