Cotton arrival to touch 13mn bales in FY14 – InvestCap Research
By: Investc Capital Markets Limited
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In today’s Value Seeker we will analyze the cotton numbers recently released by Pakistan Cotton Ginners Association (PCGA). We will further highlight the cotton prices going forward along with our recommendation on universe scrips.
Cotton arrivals grew by 9%YoY to 12.67mn bales
Although cotton figures reflected a growth of 9%YoY to 12.67mn bales upto 31Dec’13 but the same was 14%YoY until 15Dec’13 depicting a slowdown in growth. The main reason behind this hold back is 49%YoY drop in fortnightly flows to 421k bales v/s 818k bales during same period last year. Punjab contribution in total arrivals stood at 9mn bales (71%) while Sindh participation remained at 3.7mn bales bearing a share of 29% in total arrivals. Arrivals from Punjab witnessed a 7.7%YoY growth while Sindh represented a growth of 13%YoY.
District wise contribution
District Bahawalnagar has taken the lead from Punjab province with a contribution of 1.18mn bales (9.3% of total arrivals) followed by district Rahim Yar Khan and district Bahawalpur with a share of 9% and 8.2% respectively in total arrivals. District Sanghar remained at the top from Sindh province with a share of 11% in total arrivals and 38% in Sindh arrivals. No other district of Sindh made a significant contribution in arrivals.
Outlook and Recommendation
The cotton crop is almost collected in Punjab and also about to end in Sindh. However, we expect cotton arrivals to touch 13mn bales this season against initial target of 13.22mn bales. On fortnightly basis, cotton prices grew by 5.3% to Rs6950/maund (31-Dec-2013) as against Rs6600/maund 15days earlier on the back of strong activity in the sector after obtaining GSP plus status from EU. We expect cotton prices will inch up further in near term and will settle around at Rs7200/maund.
We recommend ‘Hold’ on NML and NCL with Jun-14 TP of Rs 139 & Rs 66 respectively. NML & NCL is currently trading at PE of 7.5x & 4.2x based on FY14 earnings estimate.