By: Abdul Azeem
+92-21-35205520-22 (Ext 8633)
Invest Capital Markets Limited
In today’s Value Seeker we present an update on recently released textile export figures revealed by Ministry of Textile officials coupled with our outlook and recommendation on the same.
Textile exports up by 3.9%YoY in FY14
Textile exports depict an encouraging picture; the total textile exports of the country grew by 3.9%YoY to USD13.8bn in FY14 as against USD13.3bn during the period last year. The major exports were made to EU by textile exporters as the same surged by 18%YoY and reached to record level of USD5bn in FY14. This was mainly due to the GSP plus status (duty free access) awarded by EU. However by excluding EU, the textile exports posted a decline of 3.5% during the said period.
During the outgoing year cotton cloth remained the major product which supported the overall exports followed by Knitwear, Bed Wear, Cotton Yarn and Readymade Garments.
Major negatives for textile exports
PKR appreciation: Due to highly sensitivity with the USD, local textile exports are taking hit of Rupee appreciation against USD. Although, the government incentivized the sector with offering low interest rate loans to exporters but most of the exporters are unable to utilize the said facility therefore hitting their margins. Moreover, strengthening PKR is making the local textile product less competitive in the international market.
Power crises: The local textile sector is also facing the hurdle from power and gas outages which is not only hitting production but also increasing the cost of production as companies have to relay on costlier furnace oil to run their generators.
Law & order Situation: The ongoing military operation in North Waziristan is increasing the risk of safety therefore business activities seems shrinking in the country.
Outlook and Recommendation
Although textile exports have recovered from depressed levels witnessed in FY09, we need further diversification both in terms of exploring new markets and adding more value added products to our portfolio in order to fully capitalize on our strength in the agriculture and textile sector. Also, we see this diversification as an essential ingredient if we intend to continue our dependence upon the sector for foreign exchange and to minimize trade deficit in the future.
We recommend ‘Buy’ on NML and NCL with Dec-14 TP of Rs135/sh and Rs55/sh respectively.