Published On: Thu, Nov 12th, 2015

Pakistan’s textile firms undergo 18 percent drop in profits


Pakistan’s major textile firms underwent a significant 17.5 percent drop in their net profits to US$15.17 million in the first three-month period of the 2015/16 fiscal year as subdued demand, cut-throat competition and low prices in the international market hit the country’s largest export-oriented industry, said a brokerage house  on Thursday.

The equity trading firm said total 59 textile companies, representing 55 percent of the sector, witnessed 11.4 percent dip in their sales in July-September period of the current fiscal year, ending June 30, 2016, over the corresponding period last fiscal year.

“Profit fell owing to lackluster demand, stiff competition and low prices as evident from 11.4 percent year-on-year decline in sales,” said analyst Sohaib Anjum at Topline Securities.

“This was contrary to 1.8 percent depreciation of Pakistan rupee against the US dollar and duty-free access to several textile products into the European Union under the generalised scheme of preferences (GSP) plus status.”

Analysts said waning buying appetite in international market will continue to bite the economic mainstay.

“Economic slowdown in Europe and US…will shave off the industry’s share,” Anjum said.

Pakistan’s textile exports continued to move downwards in the last few years.

In July-September, they were down 3.5 percent to US$3.2bn, showed data of the Pakistan Bureau of Statistics.

Textile businesses frequently raise hue and cry over the energy crisis that is hampering production as well as stuck refunds with the tax authorities.

“Extended delay in sales tax refund is leading to cash shortage, while energy shortage is affecting the industry,” Anjum said. “Increased labour cost and gas shortage further dented the gross profits.”

The recent import duty on yarn, slapped in November, invoked opposition from the value-added sector, which accounts for more than 60 percent of the country’s total textile exports.

Local yarn producers appreciated the government move as they were fretting over low prices of Indian fibre.

The government provided a sigh of relief to the industry by cutting export refinance and long term finance facility rates.

The analyst said the 28-member EU block will review Pakistan’s GSP plus status in January 2016 to decide whether country still qualifies for preferential treatment as it has not maintained moratorium on death penalty – one of the key conditions for the GSP plus status.

Commerce minister told media that Pakistan’s exports to EU have increased at least one billion dollars since the grant of status in January 2014.

Industry observers feared that its withdrawal may affect the country’s external sector,

An analyst said the Trans Pacific Partnership, a free trade deal reached between 12 countries located on the Pacific Rim, including US – a leading trade partner of Pakistan – may hurt the local textile industry.

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