Pakistan Textile Exports up by 25% to $11b

Textile Exports increased to a record high of US$11bn in 7MFY22 up 25%.

As per the data reported by the Pakistan Bureau of Statistics (PBS), Pakistan textile exports have witnessed a record 7MFY22 exports of US$11bn in FY22, up by 25% YoY.

In PKR terms, the same has clocked in at Rs1,861bn, up 30% YoY due to 4% currency devaluation.

During 7MFY22, the key export driver was an increase in value-added exports where the knitwear segment contributed the most as it increased by 33% YoY to US$2.9bn followed by Ready-made garments (+22% YoY to US$2.2bn) and Bedwear (+19% YoY to US$1.9bn) exports, respectively.

On an MoM basis, Pakistan textile exports are down 4% to US$1.5bn in Jan-2022, led by lower value-added exports segments mainly in Knitwear (down 12% MoM) and Ready-made garments (down 4% MoM) respectively.

Pakistan Textile Exports

Compared to last year, Pakistan textile exports are up by 17% YoY (29% YoY up in PKR terms) in Jan-22 led by significant recovery witnessed in value-added segments, largely in knitwear (up 19% YoY), Ready-made (up 17% YoY) and Bedwear (up 21% YoY).

Increased volumetric growth and improved pricing were the key drivers resulting in higher exports.

Going forward, we expect textile exports to keep robust in the ongoing FY22 fiscal year to clock in at US$18.5-19bn.

Ease of lockdown in European economies is likely to drive increased orders and help overall textile exports.

Exports of Pakistan’s goods grew by 18% in 2020-21

The Federal Cabinet on 15th Feb 2022 has finally approved the Textile and Apparel Policy 2020-25 after the Ministry of Commerce (MoC) submitted the revised draft of the textile policy to the Economic Coordination Committee (ECC) incorporating a few amendments.

The key reason behind the late approval was the dispute between MoC and the Energy Ministry on the issue of Energy Tariffs (RLNG and Electricity).

As per news sources, the updated draft stated that Energy Tariffs (RLNG and Electricity) will be provided to the textiles and apparel industry at regionally competitive rates during the policy years. For this, the tariff will be reviewed and announced in the federal budget by Finance Division.

As per the Pakistan Institute of Development Economics (PIDE), the average regional electricity tariff rate stood at 7.4 cents/kWh in Mar-21, which we believe has likely increased since then.

Pakistan electricity tariff

Pakistan’s current electricity tariff is around 9 cents/Kwh.

In the case of RLNG, the average regional RLNG rate stood at US$4/MMBTU as per PIDE vs. Pakistan’s tariff rate at US$6.5/MMBTU. We believe the above-stated textile policy will have a neutral impact on the sector.

Given, Pakistan is already offering subsidized energy & RLNG tariffs to textile players and Pakistan is part of an IMF program, a further reduction from the current levels is highly unlikely.

RLNG tariff is likely to remain intact at the US$6.5/MMBTU level although the regional average is comparatively low. To note, RLNG is currently being provided at US$9/MMBTU to the textile sector till March-22 due to supply issues.

Subsidized energy rates, increasing export numbers, and currency weakness bode well for the sector. We have an ‘Overweight’ stance on Textile Sector with Interloop Limited (ILP) and Nishat Mills Limited (NML) as our top picks.