The Bell about Personal Goods – Elixir Securities Limited

Karachi: Textiles – Exports growth slows down while margins recover

Textile exports slowdown to 12% YoY

As per recent data released by FBS, textile exports for 2MFY12 stood at USD2.2bn, up 12% YoY, reflecting a slowdown in growth as opposed to 42% YoY growth during 2HFY11.

According to Elixir Securities Limited, Textile exports for Jul‐11 declined by 15% MoM, followed by 3% MoM decline in Aug‐11 mainly due to decline in exports of cotton yarn and cotton cloth segment. Decline in Jul‐11 exports of cotton yarn and cotton cloth segment was due to quantity decline of 20‐22% amid stable prices. Price of Readymade garments’ declined by 5% YoY, which suggest slowdown in demand of value added products internationally.


Textile Exports
USD (mn)  2MFY10  2MFY11  YoY
Knitwear  368  425 16%
Cotton Cloth 347 395 14%
Bed Wear 329 358  9%
Readymade Garments 288 328 14%
Cotton Yarn  231 227 -2%
Towels 127 127 0%
Art, Silk and Synthetic Textile  102 122 20%
Other Textile Materials 184 226 23%
Total  1,975  2,209 12%
Source: FBS, Elixir Research


Declining local cotton prices amid international prices correction

During 2MFY12, local cotton prices declined substantially by 36% to PKR6,140/maund from 4QFY11 average of PKR9,576/maund, on account of lower international prices and bumper crop expected during 2012 cotton crop season. International prices corrected by 38% to USD1.15/lb from 4QFY11 average of USD1.83/lb, due to expectations of abundant supply from major cotton producers of the world. However, recent rainfall in various parts of Sindh led to increase in prices locally as well as internationally. KCA’s spot prices’ discount to international prices has narrowed to PKR23/lb during recent period, which may reduce unit margins on textile items going forward.


Month Cotton “A” Index  KCA Spot Discount Discount
 (USD/lb) PKR/maund   (%) (PKR/lb)
Apr-11  2.1660 11,550 23% 43
May-11 1.6550 8,635 26% 36
Jun-11 1.6710 8,544 28% 40
Jul-11  1.2156 6,300 27% 28
Aug-11  1.1482 6,140 25% 25
Current 1.1345 6,300 23% 23
Source: KCA, Elixir Research


Improving margins during 1QFY12

4QFY11 primary margins for spinning business contracted by 56% QoQ as yarn prices corrected by 20% QoQ in contrast to cotton prices which declined by 16%. Core EPS for NML during 4QFY11 is estimated at PKR1.93, down 32% QoQ, due to lower margins. Primary margins for NML would likely have declined primarily on the back of lower yarn and other textile product prices amid fixed procurement cost of PKR8000/maund. Running primary margin for yarn rebounded by 121% during 1QFY12 to date and is expected to lead to buoyant earnings for the spinning sector. Elixir Securities Limited’s discussion with company management suggests that NML has procured cotton during 1QFY12 for usage up to Nov‐11 at an average cost of PKR6000/maund. With current yarn price levels, Elixir Securities Limited expects the company to realize higher margins for spinning segment during 1QFY12.



  4QFY11 1QFY12 to date QoQ Current
Average Yarn Price (22 count)    PKR/kg 334 255 -24%  276
Average Cotton Price – KCA Spot  PKR/kg 257 173 -33% 169
Cotton Required / unit of Yarn  18% wastage 1.22 1.22 0% 1.22
Yarn Primary Margin (running)   PKR/kg 20 44 121% 70
Source: Industry sources, Elixir Research

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