LAHORE: Textile sector’s profits plunged by 62 per cent YoY in FY20, where the decline in the year’s profits was accentuated by dismal 4QFY20 performance due to the Covid-19 outbreak.
During the year, textile exports dropped by 6pc YoY (+9pc YoY in PKR terms) to $12.5 billion where the decline was largely attributable to lower quantity exported.
In 8MFY20 (pre-Covid-19), textile exports were up 8pc YoY. The last four months witnessed a drop of 29pc YoY due to either postponement or cancellation of orders amidst Covid-19.
Exports accounted for 71pc of the total sales of our sample companies in FY20 (65pc in FY19).
Local revenues were affected more by Covid-19 (down 21pc YoY in FY20) with the closure of retail shops during the lockdown period.
As a result, overall revenues declined by 3pc YoY in FY20, saved by an average of 16pc YoY PKR depreciation vis-à-vis USD.
Gross Margins too came under pressure, declining by 2.2ppts YoY to 14.5pc in FY20 from 16.7pc last year. This was largely due to weak economies of scale due to the pandemic, higher cotton prices as local production declined further, and higher energy costs.
To highlight, cotton prices jumped by 5pc YoY to Rs8,984/mound during 2QFY20, the main cotton procurement period, over the news of cotton shortage.
Other income of our sample also declined by 60pc YoY during FY20 mainly due to lower dividend income from investments in power companies affected by circular debt.
In 4QFY20, our sample companies dived into losses, where the deterioration in the bottom-line was due to low volumetric sales amid global pandemic.
Sales declined by 38pc YoY and 37pc QoQ in 4QFY20 with both export and local sales declining.
Overall gross margins in 4QFY20 were down by 7.8ppts YoY and 5.3ppt QoQ to 9.0pc.
Experts believe that Pakistan’s textile exports are likely to depict a strong recovery given Pakistan’s far superior improvement in coronavirus cases compared to its peers.
Prior orders, which were cancelled or postponed, have largely returned as global economies are opening up.
Moreover, purchasers are also shifting towards Pakistan from countries like India and Bangladesh, where the pandemic is still restricting economic activities.
Key risks for the sector are the rise in cotton prices due to the shortage of cotton crop and as well as the second wave of Covid-19.