GATM & NML 1HFY21 – it’s all about exports.

Textile sector has seen a revival in profitability entering into FY21, and a key driver for growth has been the rise in revenues – primarily export sales. When higher revenues along with managed costs come together, growth in core earnings is a feat. Growth in textile exports has come from rise in export orders not only from backlogged orders but also diversion of orders from the region amid the pandemic restrictions. And then the price of cotton has supported the lift in export value.

Gul Ahmed Textile Mills’ (PSX: GATM) financial result for 1HFY21 recently announced depicts the same. The textile composite saw its earnings grow by 65 percent year-on-year in 1HFY21 where the growth came primarily from the increase in topline. GATM’s revenues increased by a staggering 36 percent. The growth was led by exports that increased by 58 percent and exports share in total revenues increased from 57 percent in 1HFY20 to 66 percent in 1HFY21. Local sales growth which are largely retail based remained tepid due to due to the lockdown and restricted operating hours of retail outlets.

While the company’s gross profit increased by 22 percent in 1HFY21, gross margins slipped due to higher cost of raw material – especially cotton – and the unfavorable exchange rate. Local cotton prices increased by around 7 percent year-on-year during 1HFY21 mainly due to 34 percent year-on-year decline in cotton production. However, net profit and net margin improved as the textile company’s other income grew due to recognition of gain on GIDC liability.

On the other hand, Nishat Mills Limited’s (PSX: NML) financial performance for 1HFY21 was not as exciting. The textile giant posted a 14.5 percent year-on-year decline in earnings for 2QFY21, and 6.2 percent decline in 1HFY21. The variation in financial performance of the two textile companies comes primarily from the revenues; NML’s topline growth was flat in comparison to GATM’s upward climb. NML also has over 70 percent share of exports in its total revenue (FY20 &FY19). NML’s gross margin also slipped due to raw material cost and unfavorable exchange rate. What further impacted NML’s earnings adversely was the decline in other income due to absence of dividend income from subsidiary companies in the banking and the power sector.