Karachi: Pakistan's textile sector has reported an 11% year-on-year increase in profitability for the fiscal year 2026, bringing total profits to Rs51.9 billion. This growth was largely attributed to a decline in effective tax rates and finance costs, despite sales remaining flat at approximately US$5 billion.

According to JS Global, the effective tax rate for the top 20 listed companies, which cover composite, spinning, weaving, woollen, and apparel sectors, dropped to 33.2% from 37.1% the previous year. This decrease resulted from tax reversals on deferred liabilities following adjustments in the super tax for exporters. Finance costs also saw a 19% reduction, falling to Rs54.5 billion, as a result of lower financing rates and decreased borrowings under the Export Finance Scheme.

The sector recorded all-time-high textile exports valued at US$17.6 billion, marking a 2% increase year-on-year and accounting for 57% of the nation's total goods exports. Value-added textile exports similarly grew by 3%, reaching US$13.0 billion. Despite marginal declines in gross profit and sales, gross margins held steady at 13.1%.

Interloop, Sapphire Textile Mills, and Nishat Mills Limited emerged as the leading contributors to the sector's profitability, with Interloop's consolidated profits rising by 129% year-on-year to Rs12.7 billion. Sapphire's unconsolidated profits increased by 73%, while Nishat Mills experienced a 9% decline in profitability due to lower dividend income and contracting gross margins.

Looking ahead, the FY27 budget promises further support for the textile sector through reduced tax liabilities and cheaper financing. However, challenges such as elevated energy costs and the uncertain future of Pakistan's GSP+ status remain, alongside potential economic slowdowns in major markets like the USA and Europe.