Karachi: The textile sector in Pakistan faced significant financial challenges in the first quarter of the fiscal year 2025, with a reported 72% year-on-year decline in profitability among a sample of eight key companies. Despite a 9% growth in topline revenue, the sector experienced a notable drop in gross margins, reflecting broader issues within the industry.

According to JS Global, the sample companies analyzed reported a 5 percentage point decrease in gross margins, down to 13% for the quarter. This decline is attributed to weaker export prices, supply-side pressure in the local raw cotton market, and increased costs related to energy and salaries. The transition from concessional loans to commercial loans has also impacted the sector's cost of debt, though the effect has been somewhat mitigated by a decrease in interest rates.

The Pakistani textile sector faces additional challenges, including gas supply curtailments, rising power tariffs, and an increasing reliance on imported cotton. These factors, combined with higher taxation, threaten the profitability of the sector. While displaced orders from Bangladesh present an opportunity for Pakistani exports, the savings from lower interest rates may not be sufficient to reverse the sector's financial trajectory.