Pakistan: Textile sectors revenue, profit surge in first half

After registering a robust growth in export during the current fiscal, textile sector has recorded tremendous gains in revenue and profit during the first half of this financial year.

Textile sector posted 39 percent and 183 percent gains in revenue and profit respectively in July-December of current financial year on the back of substantial growth in all segments - spinning, weaving and composite.

Among the three different segments of textile chain, the spinning sector again was the star performer by registering heavy gains in revenue and profit. 

Textile sector's sales augmented by 39%YoY to Rs 202.9 billion in 1st half FY11. The growth was driven by better product prices in export and local markets.

As per the data released by the FBS, Pakistan's textile exports for the six months period (July-Dec 2010) were up 26%YoY at $6.3 billion. Despite hike in international and local cotton prices, which rose to record levels, improvement in gross margins by 63bpsYoY to 16% was a result of cotton inventory being carried forward from last year. 

Therefore, the profitability growth in the sector was substantially led by the spinning sector. Moreover, Other Income ascended by 59%YoY, where as the finance cost rose by a mere 1%YoY (avg. KIBOR up 59bpsYoY) in 1HFY11. Overall, the sector reported impressive earnings growth of 183%YoY at Rs 12.0 billion.

Though, the composite sector's revenue increased 31%YoY to Rs 122.9 billion, the gross margins shrank to 15%, down 82bpsYoY. This was due to an unprecedented increase in raw material prices during the period, which remained a constant concern for the value added sector. Other Income on the other hand, rose to Rs 2.1 billion (up 75%YoY) supplementing earnings growth by 94%YoY to Rs 4.7 billion.

The spinning sector continued its strong performance in 1HFY11, as revenues escalated to Rs 71.0 billion from Rs 46.2 billion in 1HFY10, up 54%YoY. Gross margins surged by 352bps to 17%, mainly led by a continuous rise in cotton and yarn prices during the period (cotton prices up 36.4% in 1HFY11). Hence, the spinning sector's overall profits rose by 303%YoY to Rs 7.0 billion.

As a result of a sharp increase in raw material prices, the weaving sector's gross margins took a hit as significant hike in yarn and polyester prices outpaced the increase in grey prices. Resultantly, the gross margins declined by 39bpsYoY to 11% despite revenues growing by 44%YoY to Rs 8.9 billion, owing to improved volumes. Furthermore, Operating profits nevertheless settled at Rs 690 million, up 75%YoY. As a result, the sector reported a Rs 290 million profit-after-tax, up 319%YoY.

Dailytimes.