By: Foundation Securities Limited
As per the latest data released by PBS (Pakistan Bureau of Statistics), country’s textile export declined by 5%YoY in 1QFY16. Excluding Readymade segment, all the major subsectors experienced decline primarily led by slowdown in volumetric exports. In September 2015, total textile exports stood at US$1.1bn down 2%/13% YoY/MoM, respectively.
Despite the aforementioned decline, we hold a positive view on the sector on the back of foreseeable improvement in the margins. Where spinning sector is to benefit from higher regulator duty on the Yarn (recently imposed in the Textile package), better export prices will continue to bode well for the value added sector. Besides, competitive devaluation and lower interest rates would also play favorably.
Bad times for spinners to end post imposition of duty on Yarn: In 1QFY16, cotton yarn and cotton cloth exports are down 19%/11% respectively. Where cotton yarn has suffered on volume as well as price of front, lower volumes are the culprit behind reduced cotton cloth exports. We believe China’s cotton reserve policy has brought an end to cotton super cycle but recent imposition of regulatory duty on yarn (10%) would provide breather to the spinning sector, in our view.
Composite unit to remain unaffected by regulatory change: In value added segment, Ready Made garment posted a growth of 7%YoY during 1QFY16 owed to better pricing. As per our calculations, during the period Readymade garment unit prices has increased by 14%YoY.On the other hand Knitwear remained flat while Bed wear registered a decline of 8% YoY, attributed to lower pricing.