KARACHI: As financial results reporting season gains
momentum, investors in textile sector are looking forward to splendid
growth in profitability, which would probably match the financial year
2013 performance.
The profitability of textile (sample firms) scaled four-fold to Rs22.8 billion in three-quarters of financial year 2013 (9MFY13) as against Rs4.4bn in the same period last year.
The upcoming results for the fourth-quarter (April-June) are thought to extend that happy trend.
When the stock prices of dead and dying textile companies started to stir to life last year, leading the KSE-100 index upwards from the 12,000 level, many thought that to be an attempt by the equity dealers to trap small investors as much of the activity took place in second and third tier or ‘penny’ stocks.
But the financial figures unveiled by companies seemed to justify the jubilation.
“Last fiscal year, FY13, was one of the better years for Pakistan textile sector in terms of sales and profits which was also reflected in more than 100pc price performance of our sample listed textile firms with market capitalisation of over Rs25 million,” says Zeeshan Afzal at brokerage Topline Securities.
Though shortage of power remained the perennial problem, especially in winter, the textile companies’ jump in profits by 400pc was mainly attributed to stable cotton prices and strong regional demand.
Moreover, continuous depreciation of rupee against the dollar and cheaper financing also contributed to hefty earnings growth.
With operating conditions remaining about the same, analysts expect another round of healthy corporate earnings results this season.
Moreover, GSP Plus status from European Union and slight improvement in energy situation was likely to support earnings in FY14.
The textile sector has seen a favourable year as prices remained stable and floated around $80 per lb.
Further, strong yarn and grey cloth demand from China coupled with depreciation in the value of rupee by 7pc also helped shore up the bottomline.
In FY13, Pakistan exported $13bn worth textile products which was up by 5.9pc in dollar terms but represented improvement by 14.7pc in local currency due to the drop in value of the rupee.
Considerable growth in exports was attributed mainly to imposition of cotton floor price in China that encouraged Chinese textile manufacturers to import more yarn and grey cloth instead of converting yarn into costly local cotton.
Resultantly, Pakistan’s yarn and grey cloth exports increased by 24pc and 10pc to $2.2bn and $2.7bn, respectively, in FY13. The latest results of the textile sector are expected to show continuous growth in export for FY14 on the back of sustained textile demand from China and substantial depreciation in local currency.
However, analysts caution that much would depend upon international cotton prices, though major volatility was unlikely to be seen in local cotton prices in FY14. The encouragement was based on estimates of Cotton Crop Assessment Committee (CCAC) which estimated Pakistan’s cotton production at 13.25million bales in FY14, slightly higher over the 13.0 million bales produced by the country in FY13.
Exports and profits of the sector could also improve due to expected Generalised System of Preferences (GSP Plus) status from EU as lower import duties would provide the country’s product competitive edge in international markets. “Further operating environment of the textile sector may see further improvement in low interest rate scenario,” analysts said, the caveat, however, being the all-important improvement in energy situation.
The profitability of textile (sample firms) scaled four-fold to Rs22.8 billion in three-quarters of financial year 2013 (9MFY13) as against Rs4.4bn in the same period last year.
The upcoming results for the fourth-quarter (April-June) are thought to extend that happy trend.
When the stock prices of dead and dying textile companies started to stir to life last year, leading the KSE-100 index upwards from the 12,000 level, many thought that to be an attempt by the equity dealers to trap small investors as much of the activity took place in second and third tier or ‘penny’ stocks.
But the financial figures unveiled by companies seemed to justify the jubilation.
“Last fiscal year, FY13, was one of the better years for Pakistan textile sector in terms of sales and profits which was also reflected in more than 100pc price performance of our sample listed textile firms with market capitalisation of over Rs25 million,” says Zeeshan Afzal at brokerage Topline Securities.
Though shortage of power remained the perennial problem, especially in winter, the textile companies’ jump in profits by 400pc was mainly attributed to stable cotton prices and strong regional demand.
Moreover, continuous depreciation of rupee against the dollar and cheaper financing also contributed to hefty earnings growth.
With operating conditions remaining about the same, analysts expect another round of healthy corporate earnings results this season.
Moreover, GSP Plus status from European Union and slight improvement in energy situation was likely to support earnings in FY14.
The textile sector has seen a favourable year as prices remained stable and floated around $80 per lb.
Further, strong yarn and grey cloth demand from China coupled with depreciation in the value of rupee by 7pc also helped shore up the bottomline.
In FY13, Pakistan exported $13bn worth textile products which was up by 5.9pc in dollar terms but represented improvement by 14.7pc in local currency due to the drop in value of the rupee.
Considerable growth in exports was attributed mainly to imposition of cotton floor price in China that encouraged Chinese textile manufacturers to import more yarn and grey cloth instead of converting yarn into costly local cotton.
Resultantly, Pakistan’s yarn and grey cloth exports increased by 24pc and 10pc to $2.2bn and $2.7bn, respectively, in FY13. The latest results of the textile sector are expected to show continuous growth in export for FY14 on the back of sustained textile demand from China and substantial depreciation in local currency.
However, analysts caution that much would depend upon international cotton prices, though major volatility was unlikely to be seen in local cotton prices in FY14. The encouragement was based on estimates of Cotton Crop Assessment Committee (CCAC) which estimated Pakistan’s cotton production at 13.25million bales in FY14, slightly higher over the 13.0 million bales produced by the country in FY13.
Exports and profits of the sector could also improve due to expected Generalised System of Preferences (GSP Plus) status from EU as lower import duties would provide the country’s product competitive edge in international markets. “Further operating environment of the textile sector may see further improvement in low interest rate scenario,” analysts said, the caveat, however, being the all-important improvement in energy situation.
