KARACHI, June 8: Textile sector profitability during the first half (October 2004-March 2005) of the current financial year stood at Rs2.78bn as compared to Rs1.58bn in the corresponding period of the previous year, thus showing an impressive growth of 77 per cent year-on-year.
A report prepared by Suleman Amir Ali, analyst at stock brokerage firm, InvestCap stated that the study was based on 28 textile companies, out of which 14 were from spinning sector, 5 from weaving and 9 from the composite segments of the textile sector. The analyst mentioned that significant improvement was seen in the gross margins of the companies as they increased from 11 per cent in 1H2004 to 14.2 per cent in 1H2005. That was primarily because of 34 per cent lower cotton prices during the period due to bumper cotton crop.
Total sales of the companies improved slightly by 4 per cent from Rs40.7bn in 1H2004 to Rs42.5bn in 1H2005. Profitability of the textile composite sector by far exceeded the growth in other two sectors. The textile spinning sector witnessed a nominal growth of 13 per cent during the period and increased from Rs510 million in 1H2004 to Rs577 million in 1H2005. Lower cotton prices resulted in a significant improvement in gross margin of the companies as it increased from 9.50pc in 1H2004 to 12.25 per cent in 1H2005. However, this rise to a certain extent was offset by a 55 per cent jump in financial charges due to higher interest rates. Sales of the companies remained stable at Rs13.5bn.
The loss making textile weaving sector plunged from profit of Rs36mn in 1H2004 to a loss of Rs92mn in 1H2005, despite an 8.30 per cent increase in sales. Higher finance cost by 42 per cent due to a rise in interest rates and higher administrative and selling expenses by 35 per cent due to higher export sales were the main causes of the decline in profitability. Apart from that, a significant increase in other charges of Samin Textiles (one of sample companies) by Rs35mn further magnified the loss of the sector.
Profitability of the textile composite sector increased by a whopping 123 per cent during the period as it increased from Rs1.02bn in 1H2004 to Rs2.3bn in 1H2005. Gross margins improved significantly from 12.5 per cent to 16.7 per cent due to lower cotton prices. Sales revenue also showed notable growth of 10 per cent and increased from Rs21.4bn in 1H2004 to Rs23.4bn in 1H2005 primarily due to higher exports of value-added items. Apart from that, a 240 per cent rise in other income due to capital gains booked by Nishat Mills (one of sample companies) on sale of MCB’s shares further inflated profitability of the sector.
Going forward, significant growth was envisaged in the textile composite sector, as almost all the major companies in the sector were going for BMR. The share of value-added items like readymade garments, towels, bed-linen, etc., had also shown significant increase in last couple of months and the trend was likely to continue in the foreseeable future, the analyst concluded.