KARACHI: Profits at Pakistan’s biggest listed textile companies rose 11% in the last financial year, even though their sales did not grow. Lower taxes and cheaper loans made the difference, according to a report by Topline Securities.
The 20 companies studied earned a combined 51.9 billion rupees (about $185 million) after tax in the year that ended in June. That was up from 46.7 billion rupees the year before, the Karachi-based brokerage said in a report dated Oct. 13.
Sales stayed about the same at 1.4 trillion rupees, or roughly $5 billion. They slipped by 0.3%. The companies kept the same profit margin on what they sold, at 13.1%.
The extra profit came from lower costs, not from selling more. The companies paid 19% less in interest on loans, about 54.5 billion rupees in total. Topline said this was because interest rates fell and companies borrowed less under a central bank scheme that helps exporters.
They also paid a smaller share of their profits in tax, 33.2% compared with 37.1% a year earlier. This happened mainly because exporters are being let off a special extra tax in the future, so companies could cancel some tax bills they had set aside.
Income from other sources, such as investments, fell 12.4% to 41 billion rupees.
The companies make yarn, fabric, wool products and clothing. Together they make up 83% of the value of the sector’s listed companies, Topline said.
Pakistan’s textile exports hit a record $17.6 billion in the year, up 2%. They made up 57% of all goods the country sold abroad. Exports of finished goods, such as clothing, rose 3% to $13 billion.
Cotton prices barely moved.
Just three companies earned 48% of the sector’s profit.
Interloop, the largest by market value, saw its profit jump 129% to 12.7 billion rupees, about a quarter of the total. It earned more on each sale, paid 35% less interest and made much more money from other sources.
Sapphire Textile Mills’ profit rose 73% to 6.8 billion rupees, even though its sales fell 13%. Its income from other sources more than doubled.
Nishat Mills’ profit fell 9% to 5.5 billion rupees. It received less in dividends and earned less on each sale. A much lower tax rate, 20% compared with 44% the year before, helped limit the drop.
Results were mixed across the group. Sapphire Fibres’ profit fell 81%. Gul Ahmed Textile Mills lost 338 million rupees after making a profit of 4.5 billion rupees the year before. Several smaller companies, including JK Spinning Mills, Tata Textile Mills and Fazal Cloth Mills, more than doubled their profits.
Topline expects the new government budget to help the industry with lower taxes and cheaper loans. It also said companies are using more solar and other cheaper energy sources.
But the brokerage warned of risks. High energy costs are likely to stay a problem for now. Pakistan could also lose its special trade deal with the European Union, known as GSP+, and weaker economies in the United States and Europe could hurt demand.
Topline advised investors to keep the textile sector at its normal share in their portfolios, neither buying more nor selling. It named Interloop as its top pick.
