Textile sector’s profitability increases four per cent

Uptick came on back of reduction in finance cost and not higher sales

KARACHI: Amid the hustle and bustle over the textile sector’s deterioration, the profitability of leading companies trading on the Pakistan Stock Exchange (PSX) has grown by 4.4% year on year to Rs4.3 billion in the first quarter of fiscal year 2017 (1QFY17), according to a Topline Securities report.

The sample includes 53 listed textile companies having market capitalisation above Rs200 million (62% market capitalisation of overall textile sector) excluding outliers. Azgard Nine (ANL), Colony Mills (CTM), Amtex Ltd (AMTX) and Quetta Textile (QUET) have been excluded from the sample due to volatility in their earnings.

The uptick in profitability can be attributed to substantial non-operating income and further reduction in finance cost of select textile manufacturers, the report said.

However, the listed textile sector shed 0.4% 1QFY17 in value, underperforming the benchmark KSE-100 index by 7.7% (KSE-100 returned 7.3% 1QFY17).

Companies included in the sample shed 2.7% for the outgoing quarter, however, this is heavily influenced by negative return of Feroze 1888 (FML) 31.3% for the period. Excluding this, the sample had a return of 17.5% during 1QFY17, outperforming the benchmark index by 9.6%.

The sales of textile companies included in the sample remained flat (up 1% year on year). Flat sales can be attributed to decline in textile exports to $3.1 billion, down 4.5% year on year in 1QFY17.

Textile manufacturers were troubled by slowdown in global economies. Moreover, working capital backlog due to delay in tax refunds by government also hampered production activity.

Gross profit of sample companies was down 4.8% year on year to Rs12.3 billion and gross margins posted an increase of 45 basis points to 8.6% compared with first quarter in fiscal year 2016 (1QFY16). Moreover, increase in average cotton prices in fiscal year 2016 was offset by improvement in average yarn margins up by ~3.8% year on year and inventory management.

However, the report said that Pakistan’s textile sector is likely to remain under pressure due to economic slowdown in Europe, lack of competitiveness of local products in international markets, which can be attributed to greater devaluation of other currencies against the dollar.

Published in The Express Tribune, November 26^th, 2016.

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