AKD Quotidian about — 2MFY13 Trade Data: Positive for Textile and Autos

Karachi, September 20, 2012 (PPI-OT): Textile exports for the first two months of FY13 were recorded at US$2.2 billion, down marginally by 1%YoY, where AKD Securities believes that the export performance is still commendable given the sharp fall in int’l cotton prices (-29%YoY).

According to AKD Securities, in this regard, robust volumetric growth across key categories (yarn, cloth and garments) helped counter the fall in cotton prices. Textile machinery imports have also gained pace (up 12%YoY in 2MFY13) where an accommodative interest rate policy could stimulate imports and capex spending in the sector. Additionally, there has been a marked slowdown in car CBU imports since touching its high in May’12, with Aug’12 imports falling by 12%MoM to US$31 million, the third consecutive monthly decline. Within the textile space AKD Securities continues to like NML which offers healthy upside of 22% to AKD Securities’ target price of PKR 71/share. Buy!

Textile exports report robust volumetric growth: Textile exports for the first two months of FY13 were recorded at US$2.2 billion, down marginally by 1%YoY, where AKD Securities believes that the export performance is still commendable given the sharp fall in int’l cotton prices (-29%YoY). In this regard, robust volumetric growth across key categories (yarn, cloth and garments) helped counter the fall in cotton prices. Of particular note has been the performance of yarn segment where export volumes have grown by 68%YoY to 111k tons, where AKD Securities attributes higher yarn exports to i) strong import demand from China and ii) improvement in gas flows to textile units. The garments’ segment also performed well with export volumes growing by 10 %YoY. However, Bed Wear segment has yet to gain traction (export volumes down 12%YoY), presumably due to the slowdown in EU. On a sequential basis, August textile exports were down by 2%MoM to US$1.1 billion on reduction in exports across most the categories: however, Cotton Cloth was the noticeable contrarian.

Textile Sector Major Category Wise Export Performance

Textile machinery imports on the incline: The import of textile machinery has increased by 12%YoY during 2MFY13 to US$64 million. Textile machinery imports could gain pace during FY13 and beyond following the recent reduction in interest rates coupled with other incentives offered to the textile industry (R and D fund etc). Textile machinery imports have been stagnant over the last two year; however relaxation in the interest rate environment coupled with urgent need for modernization could result in sharp pickup in machinery imports as well as bank lending to the sector, as was witnessed during the early part of last decade when interest rates were coming off.

Car CBU imports down for third consecutive month: There has been a marked slowdown in car CBU imports since touching its high in May’12, with Aug’12 imports falling by 12%MoM to US$31 million, the third consecutive monthly decline. Sep’12 imports are expected to further fall post reduction in depreciation limit allowance, which should provide for much needed breathing space to the local auto assemblers. In this regard, car CKD imports were actually up by 35%MoM to US$45 million.