Textile: Profits rose 40% in 1QFY14 (PDF Attached) (November 5, 2013) Pakistan’s largest industry, Textile, impressively started the current fiscal year by posting 40% rise in profitability in 1QFY14. This was due to improved demand and better yarn margins. Further boost to the profits was provided by depreciating Pak rupee and cheaper financing rates. Profits of our sample listed textile firms increased by 40% YoY to Rs9.1bn in 1QFY14. The same was also reflected at local bourse as shares of our sample listed textile firms have shown price performance of 12% vs. benchmark KSE 100 Index return of just 2.2% in 1QFY14. In textile, we cover Nishat Mills (NML) in detail and maintain BUY on the scrip with target price of Rs111 per share. Rising sales and better margins Favoring fortunes resulted in improved overall textile output in 1QFY14 which can be gauged from 9.3%YoY growth in textile exports to US$3.6bn. In terms of PKR, overall textile exports went up 19%YoY to Rs368bn. The same is reflected from listed textile companies’ profits which increased by Rs2.6bn (40% YoY) to Rs9.1bn in 1QFY14 compared to Rs6.5bn in the same period last year. Our analysis is based on selected textile firms (of 61 companies) including spinners, weavers and composites. Our sample includes all textile units having a minimum Rs250mn market capitalization at KSE. However, for the sake of comparability, we have omitted Azgard Nine and Amtex Limited due to their abnormal and volatile bottom-line. Though the sample covers 85% of textile sector market cap, it is very small compared to total Pakistan textile industry. So the actual profit growth of the textile industry would be much more than Rs9.1bn. We believe, upward trajectory of profits is mainly attributed to higher volumetric sales and improved margins. Strong cotton yarn and grey cloth demand from China and neighboring countries has contributed to higher units sales while margins increased due to stable cotton prices and around 6% Pak rupee depreciation against US dollar. In 1QFY14, local cotton prices remained in the range of Rs6,752-7,770 per 40kg compared to Rs5,573-6,645 in 1QFY13, depicting less volatility this time. Profits up 14% versus 4QFY13 Textile sector performed well in 1QFY14 vs. 4QFY13 as shown by Pakistan textile exports which increased by 3.6%QoQ to US$3.58bn versus US$3.45bn in 4QFY13. Export volumes of yarn, bed wear and towels rose by 39%QoQ, 32%QoQ & 13%QoQ, respectively. This coupled with PKR depreciation against dollar in 1QFY14 boded positive impact on the profitability of sector. Outlook for FY14 Pak rupee depreciation, continuation of China cotton policy and relatively better energy situation in the country will keep on supporting the textile sector in making profits, we believe. Expected GSP plus status from EU Parliament will further augment positive effects especially for composite units. On the other hand, potential revision of China cotton policy, recent increase in energy prices and higher inflation forecast for FY14 are expected to impact sector’s profitability, going forward.
Posted on: Wed, 06 Nov 2013 06:15:45 +0000
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