For 7MFY22, the key export driver was increase in value-added exports where knitwear segment contributed the most as it increased by 33%YoY to US$2.9 billion, followed by Readymade garments, up 22%YoY to US$2.2 billion and Bedwear up 19%YoY to US$1.9 billion exports.
However, on MoM basis, Pakistan textile exports were down 4% to US$1.5 billion in January 2022, due to lower value-added exports segments mainly in Knitwear, down 12%MoM and Ready-made garments, down 4% MoM.
As compared to last year, Pakistan’s textile exports were up by 17%YoY in January 2022 led by significant recovery witnessed in value-added segments, largely in knitwear, up 19%YoY, Ready-made up 17%YoY and Bedwear, up 21%YoY.
The volumetric growth and improved pricing were the key drivers resulting in higher exports.
Going forward, analysts expect textile exports to remain robust in the remaining months of FY22 fiscal and may touch US$19 billion.
Ease of lockdown in European economies is likely to drive increased orders and help overall textile exports.
The Federal Cabinet on February 15 approved the Textile and Apparel Policy 2020-25, after Ministry of Commerce (MoC) submitted the revised draft of textile policy to Economic Coordination Committee (ECC) incorporating few amendments.
The key reason behind the late approval was the dispute between MoC and Energy Ministry on the issue of Energy Tariffs, specifically RLNG and Electricity.
As to the sources, the updated draft stated that Energy Tariffs (RLNG and Electricity) will be provided to textiles and apparel industry at regionally competitive rates during the policy years. For this, tariff will be reviewed and announced in federal budget by Finance Division.
§ As per Pakistan Institute of Development Economics (PIDE), the average regional electricity tariff rate stood at 7.4 cents/kWh in Mar-21, which we believe has likely increased since than. Pakistan’s current electricity tariff is around 9 cents/Kwh.
§ In case of RLNG, the average regional RLNG rate stood at ~US$4/MMBTU as per PIDE vs. Pakistan’s tariff rate at US$6.5/MMBTU. We believe the above stated textile policy will have a neutral impact on the sector. Given, Pakistan is already offering subsidized energy & RLNG tariffs to textile players and Pakistan being part of an IMF program, a further reduction from the current levels is highly unlikely.
§ RLNG tariff is expected to remain intact at US$6.5/MMBTU level although regional average is comparatively low. To note, RLNG is currently being provided at US$9/MMBTU to textile sector till March-22 due to supply issues.
§ Subsidized energy rates, increasing export numbers, and currency weakness bodes well for the sector. We have an ‘Overweight’ stance on Textile Sector with Interloop Limited (ILP) and Nishat Mills Limited (NML) as our top picks.
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