Textile profit reaches Rs13.2b as China stockpiling yarn

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LAHORE - Profitability of textile units has reached Rs13.2 billion in first half of fiscal year 2012-13 as compared to Rs1.1 billion in the same period last year as China continues to stock more and more yarn.

Industry experts said that the multifold increase in profitability is primarily on the back of higher regional demand and absence of inventory losses that turned many loss-making companies into profits.

On quarterly basis, profitability of 70 listed textile mills, representing 97 per cent of the market capitalization (excluding Azgard Nine) has improved by 29 per cent to Rs7.4 billion in 2QFY13 as compared to Rs5.8 billion last quarter and loss of Rs0.1 billion loss in the same quarter last year.

The latest numbers reveal that textile exports have surged by 8 per cent to $7.5 billion in 7MFY13. Topline securities experts, in a report, attribute higher textile exports to Chinaís stockpiling move which had effectively increased their domestic cotton prices and is facilitating Pakistanís exports to the country. In addition, rising labor cost has also placed Chinaís low value added textile firms at competitive disadvantage to the region as well.

Furthermore, turnaround in profits is also attributable to stable cotton prices as textile units suffered huge inventory losses last year due to sharp plunge in the cotton prices.

Improved sector dynamics has kept the textile sector in the limelight at local bourse. Higher regional demand culminating into rising exports and firm cotton prices stands out as the chief contributors to the multifold increase in the profitability of Pakistanís largest industry. In FY13TD, listed textile sector has yielded 70 per cent price return, outperforming the market return of 30 per cent. Analysis reveals that sectorís profits have reached Rs13.2 billion in 1HFY13 as compared to Rs1.1 billion in 1HFY12, up 12 times.

Zeeshan Afzal, an industry expert, continues to see the sector under favorable light with conviction coming from consistent regional textile demand (especially yarn) and downward sticky cotton prices. Further support to profitability is also likely to come from Pak rupee depreciation, subdued finance cost and improved gas situation beyond winter.

He believes the strength in exports and cotton prices will persist in the current fiscal year. Boost to the profitability is also expected to emerge from depreciating Pak rupee, decline in finance cost and easing gas shortage situation after passing winter.

Courtesy: †The Nation

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