Textile sector to yield higher profits

The textile sector continues its commendable performance in the last quarter of fiscal year 2009-10 and is expected to make higher profits, according to analysts.

Value added exports, with a 53 per cent share in total textile exports, have already grown by five per cent in the first two months of the fourth quarter compared with the third quarter of fiscal 2010.

On the flip side, yarn exports on average have declined by seven per cent in April to May against the third quarter.

The decline in yarn export revenues will not dent the sector because of rising value added exports which fetch better margins, wrote JS Global Capital analyst Bilal Qamar.

Yarn exports comprise 14 per cent of total exports.

However, profits of spinners would take a hit in the fourth quarter due to a likely fall in volumetric export sales as evident from the export numbers, said Qamar.

Despite an impressive performance, the recently soaring cotton prices would put some pressure on the sector’s margins, Qamar added.

The analysis is based on the export data released by the Federal Bureau of Statistics (FBS) for the first 11 months of fiscal year 2010.

Value added exports to boost profits

Value added products have been focused on generating cash on higher margins as a regulatory duty had been imposed on yarn, said Qamar.

Sales usually pick up during the last quarter with orders from foreign buyers for the summer season, the analyst said.

This is evident from the average monthly exports for April to May which have increased by five per cent.

In addition to higher export volumes, rising prices have also supported the growth in value added exports. The value added sector stalwarts are knitwear, bedwear, towel and readymade garments.

Regulatory duty to hit spinners

Yarn exports have fallen by seven per cent in the first two months of the fourth quarter compared with the third quarter.

The spinners’ profits are expected to shrink during the quarter, according to the analyst.

To recall, the spinning segment reported healthy profits of Rs3.6 billion in the first nine months of fiscal year 2010, based on a sample of 20 companies which hold 80 per cent of market capitalisation.

Though yarn prices are still strong, the imposition of regulatory duty is likely to restrict volumetric export sales in June.

Moreover, local cotton prices have recently surged to new highs and currently trade at a premium to international prices which has limited the spinners’ ability to export yarn on better margins, the analyst said.

Published in The Express Tribune,July 15^th, 2010.