Textile exports in FY21 registered an increase of 18.9%YoY to stand at US$13.7bn with value added segments registering an uptick of 24.6%YoY. In addition, textile exports for the month of May’21 registered a growth of 41.1%YoY to stand at US$1.06bn, gaining from low base effect. On the other hand, May’19 exports declined by 10.7% while an estimated 16% MoM drop in volumes, due to extended Eid holidays amidst the third wave of COVID-19 outbreak, was registered. On a month on month basis, exports diminished for the second consecutive month, down 20.5% in May’21 where value and non-value added exports recorded a decline of 20.0% and 22.3% respectively, as seen in other regional countries. Decline in textile exports was witnessed across all categories, where key drops were witnessed in Bed Wear (-24% MoM) and Readymade Garments (-20% MoM) in value terms. Mohsin Ali, an investment analyst at AKD Securities LTD, says international cotton prices have remained flat in May’21 while CYTD/FYTD increase stands at 12.12/38.5%. “Going forward, we expect cotton prices to surge on stronger demand expectation outpacing supply growth.” He added that the textile sector has turned out of favor in recent months, underperforming KSE-100 index by 7.5ppt. “We expect earnings to remain robust in the near term as older cotton inventories benefit local manufacturers in sailing through the recent bull cycle in commodities, along with stronger off takes as global economies reach pre-COVID levels. We prefer NML with the stock currently hovering around just over its portfolio value of PkR98/sh, where our TP for the stock stands at PkR132/share,” said the analyst. Cotton price surge Mohsin Ali informs that global production next season is placed at just over 118.9 mn bales up 5.0%YoY, and consumption is projected to hit a multiyear high at 122.5 mn bales up 4%YoY. Estimated production levels for some of the biggest producers such as US (up 2.4mnYoY bales for FY22), Brazil (up 2.0mnYoY bales for FY22) and Australia (up 1.1mnYoY bales for FY22) should help global cotton production to reach pre covid-19 levels. On the local front, cotton prices currently stand at PkR13,375/maund – at about highest level since 2011 – or +5.2%MoM in Jun’21 with the recent rise attributable to lower cotton production of 5.3mn bales against mill use of ~10.8mn bales. “For FY22, government projects cotton production at 10.5mn bales which we believe to be achievable with multiyear prices luring farmers from competing crops towards cotton. However, we rule out sharp correction in cotton prices in the near term following strong demand from textile players,” he adds. Investment perspective The FY22 Budget seems to have positive inklings for the textile sector particularly for value added textile segments on the back of reduction in import duties on certain categories of yarn and chemicals and increase in sales tax on cotton to 17% from 10% could translate into lower refund accumulation. “We expect Pakistan textile exports are likely to reach US$15bn in FY21, which will be the highest in country’s history,” said the investment analyst.