KARACHI: The country’s textile sector maintained a fantastic performance during the financial year 2010 posting remarkable annual growth in earnings of 690 percent.
The sector’s top-line also grew by a respectable 27 percent to Rs 277 billion in 2010. Pakistani textile exports blossomed not only on the back of good prices fetched in both domestic and oversea markets, but also a rise of production volume and the rupee’s depreciation against the dollar (average six percent in FY10). The undervalued rupee was a boon to exporters whose products became more attractive on the international market.
High cotton and yarn prices, especially in the 2nd half of the FY10, augmented revenues, pushing the FY10 gross margins up by 212bps to 17 percent.
Furthermore, a 36 percent annual increase in other income sources and a simultaneous fall in financial charges of 14 percent, courtesy of declining KIBOR rates, bolstered the outlook on profits.
The spinning sector performed extremely well in FY10 with revenues climbing to Rs 86 billion from Rs 63 billion in FY09. Gross margins rose significantly to 18 percent. This was predominantly a result of the global production shortfall of cotton and yarn and pushed prices in the latter half of the year.
Consequently, domestic spinners, in addition to the local market, were able to increase sales in international markets, earning hefty margins. Export of cotton yarn increased by 27 percent valued at $1.4 billion, generating record sales in the second half of the year. Overall, the spinning sector, boasting of profits of Rs 7 billion compared to a loss of Rs 1 billion in 2009. The weaving sector’s revenue enlarged to Rs 13 billion with gross margins remaining stable at 11 percent.
The composite sector’s top-line improved by 25 percent to Rs 178 billion with gross margins improving to 18 percent. This was mainly attributable to high volume sales, a profitable product mix and an overall rise in the prices products.
The spinning segment evidently played a dominant role in driving the sector’s growth in 2010, however, hefty yields on yarn exports was a one-off phenomenon and future profits are likely to be tempered in the next financial year.
“This assumption is based on the premise that the cotton prices are already touching new peaks in the current procurement season and might not allow local spinners to earn significant margins this year,” said Rabia Tariq of the JS Research.
