Textile sector performance has remained sluggish

· International cotton prices remained strong throughout 1QFY22, hovering around USc112/Ib with an increase of 10%QoQ in 1QFY22, taking cumulative CYTD increase of 32.6%. We expect international prices to ease in the coming months, where potential higher production in key areas is likely to offset the increase in demand.

· Cotton prices have started receding, down 4%MoM to currently hover around PkR14,393/maund but still at historically highest levels. However, the recent arrival of 3.85mn cotton bales (+2.0xYoY) for the mill use casts positive overtures on cotton production outlook where the current production target is set at 8.5-9.0mn bales for FY22. The same should result in containing import bill where last year raw cotton imports stood at 4.9mn bales vs avg. 3mn bales pa. Historically — potentially translating into savings of US$842mn.

· Local yarn margins currently stand at PkR247.2/kg or (+64%) vs PkR176.2/kg or (+60%) in FY21, due to robust demand outlook of textile products.

· Textile sector performance has remained sluggish (FYTD return: -ve 1.8%) despite significant positive developments supporting earnings outlook. Hence, we maintain our bullish stance on the sector where NML (TP: PkR132/sh – 48% upside) stands as our top pick with the current price offering core operations virtually free.

Courtesy – AKD Research

 

Sharing is caring

Leave a Reply