Profits of listed textile companies jump 32%

Higher sales, lower finance cost support increase in earnings

KARACHI:

The profits recorded by Pakistan’s listed textile companies jumped 32% in the first half of fiscal year 2020-21 against the corresponding period of previous fiscal year primarily due to higher sales and lower finance cost.

“The textile sector’s profitability has shown a significant increase during the first half of fiscal year 2021 on a year-on-year basis primarily due to a spike in textile exports, improvement in other income and decline in finance cost,” stated a report of Topline Securities.

The research house filtered out companies based on minimum market capitalisation of Rs1 billion and included 21 firms in its sample. The listed enterprises represent 82% of the textile sector’s market capitalisation.

Overall, the revenues rose 12% during the period under review on a year-on-year basis as textile exports during the first half of fiscal year 2020-21 increased 8% in dollar terms and 13% in rupee terms, the report said. Topline Securities analyst Saad Ziker said that the backlog of orders from second half of fiscal year 2019-20 and diversion of orders from regional countries such as India and Bangladesh amid Covid-19 lockdowns helped support exports.

In addition, the uptick in general prices due to the commodity super cycle also played an important part, he said.

“The increase in pricing and depreciation of the rupee against the US dollar by 4.6% helped mitigate the impact of rising cotton prices as gross margins remained largely unchanged at 16%,” he said. “However, gross profits increased by 9% year-on-year.”

Local cotton prices increased 7% in the six months under review compared to the corresponding period of previous year to an average of Rs9,154 per maund mainly due to a 34% decline in cotton production.

Other income of the companies included in the sample increased 22% in Jul-Dec 2020 mainly due to re-measurement gains booked on the gas infrastructure development cess (GIDC) as per the IFRS, and exchange gains recorded on net foreign asset exposure.

Finance cost declined 14% year-on-year in the first half of FY21, which was attributed mainly to lower interest rates.

Published in The Express Tribune, March 5^th, 2021.

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