Contrary to what many had hoped, textile industry hasn had a good quarter. The industry wide turnover remained on the sluggish side in the third quarter ending March 2014, whereas costs remained strong resulting into lower net profits and a reduction in profit margins.
A look at the countrys top ten vertically-integrated textile firms (based on market capitalization), shows that most firms remained constrained in the third quarter.
Nishat Mills (NML) still managed to be the market leader, contributing around 24 percent to industry sales. NML was followed by Gul Ahmed Textile Mills (GATM), Nishat Chunia (NCL) and Fazal Cloth Mills (FZCM) that also cumulatively contributed 37 percent to industry turnover.
A confluence of factors affected the sector in 3Q FY14. Slowdown in high street retail sector sales in the US and European markets, sharp appreciation of Pakistani rupee against the US dollar of around 6.5 percent during the quarter, without corresponding decrease in input costs and higher inflation compared to China and India during the period under review resulted in decline in revenues and reduction in margins of the textile sector.
In addition, higher wages, a 6 percent year-on-year increase in cotton prices and the upsurge in overhead costs owing to high fuel and power costs led to increased pressure on the industry thereby eroding their margins.
Moreover, "the prices of yarn were under pressure due to stiff competition both in local and export markets as a result of availability of cheaper Indian yarn and decision of China to use previously accumulated huge cotton stocks," NMLs directors said in their third quarter report, while commenting about the industry environment. This slower off-take adversely affected the spinning and weaving divisions of the industry. However, processing and home textile division, especially, of NML and GATM performed remarkably well due to broad customer base and proactive marketing strategy by the firms.
To avail the opportunity from the grant of GSP+ status, some of the major textile companies have invested in increasing their production capacities. NCL is undertaking modernization of NCL seven and eight spinning units, NML is commissioning 100 Toyota Air Jet looms and ANL is going for restructuring. On the other hand, GATM and Kohinoor Textile Mills (KTML) are engaging in strong quality management systems, with the strategy of diversification of products and expansion in target markets.
Reportedly, a new textile policy (2014-19) is being formulated by the current government. Plus, sales tax at the rate of two percent applicable on yarn, three percent on fabric and five percent on garments is expected to be revised in budget (2014-15). The textile sector hopes that the current government will provide level-playing field by releasing billions of rupees stuck in sales tax refunds and give compensatory rebate to make up for the losses suffered due to exchange rate appreciation, as these factors have rendered textile industry uncompetitive within the region.
The real test for textile companies, however, is to maintain the growth trajectory of its margins in the face of difficult macro-economic conditions. FY14 is turning out to be another tough year for textiles. To end the year on a high note, the gross and operating margins would have to perk up by a long shot in the final quarter--something that seems less likely at the moment.
Source:- brecorder.com
No comments:
Post a Comment