In the financial year 2022-23, Pakistan’s textile sector saw a decrease inprofitability, with a 24 percent year-on-year decline to Rs. 72.6 billion.This decline was primarily attributed to increased finance costs, elevatedcotton and energy expenses, and a global economic slowdown, as reported byTopline Securities.
During FY23, sales of listed textile companies increased by 15 percentyear-on-year to reach Rs. 1,150 billion. However, when measured in dollars,there was a 17 percent year-on-year decline, mainly due to reduced textileexports. In the same period, Pakistan’s textile exports amounted to $16.5billion, marking a 15 percent year-on-year decrease (although theyincreased by 18 percent year-on-year in PKR terms).
This decline in exports was primarily driven by the global economicslowdown and recession in Europe. The gross margins of the sample companiesdropped from 19 percent in FY22 to 17 percent in FY23, primarily due to thehigh costs of energy and cotton, which constitute a significant portion oftextile companies’ expenses.
It’s worth noting that, due to IMF conditions, the government discontinuedthe concessional energy tariff for the textile sector from March 01, 2023,leading to increased production costs. Additionally, local cotton pricesincreased by 9 percent year-on-year to an average of Rs. 19,070 per moundduring FY23, attributed to adverse weather conditions that caused heavyrainfall and flooding, damaging cotton crops last year.
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On a positive note, other income for sample companies increased by 47percent year-on-year, driven by exchange gains and a rise in interestincome. However, finance costs also surged by 109 percent year-on-yearduring FY23, mainly due to higher interest rates and increased borrowing inthe sector.
Furthermore, the effective tax rate for the sector stood at 20 percent inFY23, compared to 16 percent in FY22.