Karachi, April 18, 2022 (PPI-OT): 3QFY22 textile exports up 24% YoY; just short of all-time high

Aggregate 3QFY22 textile exports reached US$4.86bn, up 24% YoY, falling just US$100mn short of marking the highest quarterly exports (2QFY22: US$4.96bn).

Knitwear, Readymade and Bed wear alone contributed to more than 70% of the growth during 3QFY22, with 20% – 30% YoY growth in these segments during the quarter.

Albeit based on better pricing; encouraging growth in value added exports alongside 4% PKR depreciation against US$ in 3QFY22, makes way for healthy revenue growth for the listed textile export players in the upcoming result announcements.

Growth in 3Q exports to boost revenues

Textile exports increased 20% YoY in Mar-2022 to US$1.63bn. The aggregate for 3QFY22 reached US$4.86bn, up 24% YoY, marking the second highest quarterly exports after 2QFY22 (US$4.96bn). Contribution of value-added textile remained at ~70%, similar levels on a sequential basis and an increase of ~200bp YoY. Knitwear, Readymade and Bed wear alone contributed over 70% of the growth in 3QFY22. Nonetheless, growth continued to be led by improvement in pricing.

While most categories reflected a double-digit growth in average unit prices, ranging from 15% to 50% YoY, an exception from the major segments was the Readymade segment with a 15% YoY price decline. To note, average textile exports in volumes have been between squeezed ranges since more than a couple of quarters now. Albeit, encouraging growth trend in value added exports, alongside 4% PKR depreciation against US$ during 3QFY22, makes way for healthy revenue growth to be posted by the listed textile export players in the upcoming result announcements. We reiterate KTML (TP: Rs110) as our top pick from the textile space given the stock’s current market value offering a deep discount to its portfolio. Moreover, we maintain a Buy for NML (TP: Rs140) and NCL (TP: Rs65).

Efforts on volumetric growth – a dire need

Reliefs announced in the Federal Budget FY22 were expected to cushion the textile sector’s working capital, assisting in managing higher prospective export orders. Higher textile exports – as a result of the response to the TERF facility (almost 60% of LTFFs and TERF availed by textile manufacturers) – were also expected to materialize during FY22, but have so far not translated into material numbers in volumes.

While we expect a sustainable US$1.6bn – US$1.7bn monthly export from the textile sector, a key downside risk emits from divergence of prospective orders to competing regional players as global economic activity steps towards normalization. In addition, any curtailment of gas in the upcoming gas crisis would likely hinder the ongoing growth momentum, making it difficult for textile companies to meet with the upcoming orders booked.