KARACHI, Oct 13: Textile sector’s profitability during the first nine months of the post-quota regime (January-September 2005) grew by an impressive 48 per cent owing to improved gross margin from 11 per cent recorded in the same period last year to 14 per cent this year.

The lower cotton prices and higher exports of value-added goods (to a lesser extent) are the main reasons for the improvement. However, analysts are of the view that the performance on the sales front was less than impressive, with a meagre growth of five per cent year-on-year.

According to a study carried out by Suleman Amir Ali of InvestCap, all textile sectors did not perform well in the first nine months of the quota-free regime. Spinning and weaving sectors somewhat suffered whereas the composite sector showed extraordinary performance, with profits almost doubling year-on-year.

The study is based on 27 listed textile companies chosen on the basis of market capitalization and turnover. Out of the total, 13 companies are from spinning, five from weaving and nine from the composite sector.

Of the three sectors, spinning showed the lowest growth of one per cent in sales. Stiff competition from low cost producers in China, Bangladesh and India restricted the growth, the study revealed.

The poor growth in the spinning sector is more of a surprise when looked at a fact that a couple of years ago major players in this sector made huge investment under the BMR but the impact was yet to been seen.

The weaving sector, however, managed to show a good growth of 10 per cent in sales, but the growth did not translate into profitability. The sector apparently could not withstand the sheer explosion of low cost Chinese knitted goods. Consequently, gross margin declined to six per cent, compared to eight per cent recorded during the corresponding period last year.

Other factors, which adversely affected the margin of this sector, are a 91 per cent increase in financial charges and a 36 per cent increase in administration and selling expenses. As a result of these developments, the overall profitability of the sector was dampened.

Nevertheless, the composite sector was indisputably the best performer of the three, with net profits almost doubling year-on-year. However, on the sales front, the study says, it too fell short of expectations, with a marginal growth of seven per cent year-on-year.

However, net profit of the sector increased on the back of improved gross margins, which improved from 12.5 per cent during the same period last year to 17 per cent during Jan-Sept of this year.

In the meantime, a fierce war is going in the quota-free market with all the major players in the textiles and clothing, including China, India, Turkey and Thailand, are competing in the $350 billion global textile market.

However, the key word remains the same that only those nations would be able to retain or expand their market share that could uphold and meet three basic conditions — competitive price, quality and prompt delivery.