Textile sector’s profit down 23pc in July-October

KARACHI: Textile sector, the country’s key exports’ revenue spinner, posted a 23 percent decline in profit to Rs3.5 billion in the first four months of the current fiscal year as the sector’s finance cost rose 24 percent and other income fell six percent, an analyst said on Friday.
Analyst Adnan Sami Sheikh at Topline Securities said the sector, representing 32 listed textile companies and covering 85 percent of the total market capitalisation, recorded a net income of Rs4.6 billion in the July-October period of FY2018.
But, the sector’s revenue grew 11 percent year-on-year to Rs117 billion in the 1QFY2018 “Costs to push up sales were greater (cotton, fuel, labor and discounts) and resultantly the sample’s gross profits only increased two percent indicating that gross margins fell one percent from 11 to 10 percent,” Sheikh added.
He said textile companies could be hurt by prolonged currency stability, volatility in commodity prices and fluctuation in market prices. The country’s textile exports increased 7.9 percent to $3.26 billion in the period under review.
“Textile companies have so far nearly delivered on their promise to meet the government’s target of boosting exports by 10 percent in exchange for additional rebates,” the analyst of Topline Securities said. “However this push has had a significant impact on the sector’s margins and we opine that in order to boost exports textile players have resorted to offering higher discounts (which can be partially off-set by rebates).”
Sheikh said lower prices realised by exporters have hit sales.
He said exports of knitwear, which is a biggest export head, grew 15 percent in quantity terms in July-October, but its exports rose only nine percent in dollars term as realised prices fell five percent. Likewise, export quantity of readymade garments increased 19 percent and its exports value rose only 16 percent as the realised prices inched down two percent.
Costs have also gone up and may go up further. Furnace oil prices escalated 26 percent in the four-month period. While local cotton prices contracted three percent, its international prices increased 1.5 percent. “Any potential rupee depreciation would bode well for sector’s prospects,” Sheikh added.