March 12, 2024 (MLN): Pakistan’s textile industry suffered in the second quarter of the fiscal year 2024 as the sector grappled with the repercussions of soaring energy costs.
The escalating costs significantly compressed profit margins, resulting in partial shutdowns across the industry.
The Textile Composite sector saw a 57.8% QoQ plunge in net profits during the quarter, clocking in at Rs5.14 billion as against Rs12.17bn in the previous quarter.
The global economic landscape, characterized by uncertainty and rising production costs in terms of raw materials and labor, posed substantial challenges to Pakistan's textile industry.
Additionally, frequent energy shortages and power outages disrupted production schedules, affecting delivery timelines and undermining customer confidence.
Beside other aspects, the Textile Sector is affected by Cross Subsidies borne by the Industry from Energy Regulator
The regionally competitive power rates are within the range of 7 – 9 cents, whereas, in Pakistan, it is hovering around 14 cents due to bearing of Cross Subsidies, Gul Ahmed Textile Mills Limited (PSX: GATM) highlighted.
While regional counterparts Exports have started to flourish, Pakistan has been able to up their Exports merely in fiscal year 2024.
As per the results compiled by Mettis Global of the income statements of the four Textile Composite companies, the sector saw a fall of 7.2% QoQ in its sale revenue, worth Rs119.3bn as compared to Rs128.6bn in the previous quarter.
To note, the compiled sector result includes KSE-100 index companies, which are: GATM, ILP, KTML, and NML.
The cost of sales fell 5% QoQ but was lesser than proportionate to the sales decline, reducing the gross profit by 16.7% QoQ to Rs20.4bn against a gross profit of Rs24.4bn in 1QFY24.
On the expense side, the sectors’ selling and distribution expenses fell by 5.7% QoQ, other operating expenses fell 40.9% QoQ, while administrative expenses rose 5.5% QoQ, amounting to Rs3.7bn, Rs0.6bn, and Rs4.1bn respectively.
During the review quarter, other income of the sector decreased by 50.5% QoQ to stand at Rs3.1bn in 2QFY24 as compared to Rs6.4bn in 1QFY24.
The sector's finance costs rose 11% QoQ and stood at Rs7.7bn as compared to Rs7bn in 1QFY24, primarily due to high borrowing costs.
There has been a substantial change in the Export Refinance Facility rate, which has increased to 19% in the current review period.
Additionally, for KIBOR-based financing, the average rate has risen to 22% in the current review period.
On the tax front, the sector paid a higher tax worth Rs2.2bn against the Rs2.3bn paid a quarter earlier, depicting a rise of 21.3% QoQ.
| Unconsolidated (un-audited) Financial Results for quarter ended 31 December 2023 (Rupees in '000) | |||
|---|---|---|---|
| Dec-23 | Sep-23 | QoQ % Change | |
| Net Sales / Revenue | 119,339,862 | 128,610,849 | -7.2% |
| Cost of sales | -98,984,410 | -104,172,069 | -5.0% |
| Gross Profit | 20,355,452 | 24,438,780 | -16.7% |
| Selling And Distribution Expenses | -3,738,564 | -3,962,522 | -5.7% |
| Administrative Expenses | -4,076,338 | -3,863,334 | 5.5% |
| Other income | 3,147,596 | 6,354,625 | -50.5% |
| Other operating expenses | -598,443 | -1,012,013 | -40.9% |
| Profit Before Interest And Tax | 15,089,703 | 21,955,536 | -31.3% |
| Finance cost | -7,747,963 | -6,981,189 | 11.0% |
| Profit before taxation | 7,341,740 | 14,974,347 | -51.0% |
| Taxation | -2,205,893 | -2,803,997 | -21.3% |
| Profit After Tax | 5,135,847 | 12,170,350 | -57.8% |
Source: Company Accounts, Mettis Global
Outlook
The global economy is now, in many ways, doing better than expected.
The US not only avoided a recession but has grown at a steady clip, inflation is falling in most of the world.
However for Pakistan the macroeconomic indicators still depict certain challenges, Interloop Limited (PSX: ILP) noted.
This includes, geopolitical uncertainties, supply chain disruptions in red sea and ongoing conflicts pose potential risks that could barricade the growth.
Echoing these concerns, GATM stressed that despite economic resilience earlier this year, with a reopening rebound and progress in reducing inflation from last year’s peaks, it is too soon to take comfort.
Economic activity still falls short of its prepandemic path, especially in emerging market and developing economies, and there are widening divergences among regions.
Several forces are holding back the recovery. Some reflect the long-term consequences of the pandemic, the war in Ukraine, and increasing geoeconomic fragmentation.
Others are more cyclical in nature, including the effects of monetary policy tightening necessary to reduce inflation, withdrawal of fiscal support amid high debt, and extreme weather events.
The recent hike in gas prices for captive and Industrial customers, rendered export sectors less competitive vis-avis regional counterparts.
The recent shortfall in the domestic cotton crop, although witnessing some improvement, necessitates resorting to importing cotton bales to meet industry demands.
Adhering to the terms of the IMF's Stand-by Facility, the government has implemented substantial hikes in gas prices, presenting an unprecedented increase of 3.23x over the past year.
This surge, coupled with volatile exchange rates, inflationary pressures, and elevated interest rates, markedly elevates the cost of conducting business compared to previous periods, said GATM.
Such conditions may precipitate a notable economic deceleration and contraction in export volumes.
Copyright Mettis Link News
Posted on:2024-03-12T10:24:08+05:00
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