Textile scrips fetch 150pc more profit in FY13

Textile being the country’s largest industry remained a shining star in terms of profitability at local bourse due to strong regional demand and better margins in FY13, said the market analysts.
Further boost to the profits of textile firms was provided by depreciating Pak rupee and cheaper financing, they said.
“Due to these factor, profits of our sample listed textile firms increased by 150% to Rs30.6bn in FY13,” said Muhammad Tahir Saeed of Topline Research. He said the same glory was also reflected at KSE as the shares of these listed textile firms showed abnormal price performance of 94% vs. benchmark KSE 100 index return of 49% in FY13. Favoring fortunes resulted into improved overall textile output in FY13 which can be gauged from 5.9% (14.7%) growth in textiles exports to $13.1bn (Rs1.3trn). The same is reflected from listed textile companies’ profits which increased by Rs18.3bn (150%) to Rs30.6bn in FY13 compared to Rs12.3bn last year.
“Our analysis is based on selected textile firms (55 companies) including spinners, weavers and composites. Our sample includes all textile units having a minimum of Rs250mn market capitalization at KSE. However, for the sake of comparability, we have omitted the companies which have not yet announced their FY13 results and Azgard Nine due to its abnormal and volatile bottom-line. Though our sample covers 85% of textile sector market cap, it is very small compared to total Pakistan textile industry. So the actual profits of the textile industry would be much more than Rs30.6bn,” said Saeed. The analyst believes that upward trajectory of profits was mainly attributed to higher volumetric sales and improved margins. Strong cotton yarn and grey cloth demand from China and its neighboring countries had contributed to higher units sales while margins increased due to stable cotton prices and 8% Pak rupee depreciation against US dollar. To recall, textile makers’ margins got a severe hit in FY12 due to sharp volatility in cotton prices. In FY13, local cotton prices remained stable at an average of Rs 6,540 per 40kg whereas in FY12 price range was Rs5,252-9,003 per 40kg which depicts high volatility.
However, the analyst said, things were little different in 4QFY13 when profits of these firms decreased by 21% QoQ to Rs7.9bn. “For the decline, we believe, company specific issues (especially Amtex Limited) were the culprit this time. If we omit Amtex Limited from the sample, quarter-on-quarter decline reduces to mere 5%,” he said. In 4QFY13, Amtex Textile posted loss of Rs1.7bn compared to loss of Rs126mn in 3QFY13.