Pakistan's Textile Sector Faces Unravelling Amid Global Slowdown, High Costs: Key Exporters Affected

What the "unravelling" means for textiles

The Pakistani textile sector is facing severe headwinds, with recent reports describing a broad "unravelling" of its operations and profitability. This refers to a combination of factors that have made it increasingly difficult for textile manufacturers, particularly those focused on exports, to maintain competitiveness and production levels. The core issues include a significant decline in international orders due to a global economic slowdown, coupled with high and uncompetitive energy costs within Pakistan. This situation has led to reduced capacity utilization, lower export volumes, and squeezed profit margins across the industry.

Why it matters for textile stocks

For companies listed on the Pakistan Stock Exchange within the textile composite sector, this "unravelling" translates directly into a challenging business environment. As many of these firms are heavily reliant on export markets, a drop in global demand means fewer orders and lower revenue. Simultaneously, the rising cost of inputs, especially power tariff and gas, erodes their profitability. When gas supply is also curtailed, as it often is for industrial users, it forces factories to shut down or operate at reduced capacity, further impacting their financial performance. These factors collectively put significant pressure on the earnings and operational efficiency of textile stocks.

Which stocks, and why

Several major textile composite companies on the PSX are directly exposed to these challenges:

• Interloop: As one of Pakistan's largest hosiery and denim exporters, Interloop is highly sensitive to shifts in global apparel demand. A slowdown in international markets directly impacts its order book and sales volumes. Furthermore, its manufacturing operations are exposed to the high cost of energy and potential gas curtailment, which can increase production expenses and disrupt supply chains.

• Nishat Mills: The flagship textile company of the Nishat Group, Nishat Mills has significant export operations across various textile segments. It faces similar pressures from reduced global demand for its products. The company's profitability is also affected by the rising cost of electricity and gas, which are crucial for its extensive manufacturing facilities, and by any gas curtailment that limits production.

• Gul Ahmed Textile: Specializing in home textiles and apparel, Gul Ahmed Textile is another major exporter. Its performance is closely tied to consumer spending patterns in key international markets. The "unravelling" of the sector means it likely experiences reduced export orders and faces higher operational costs due to domestic energy prices and potential supply disruptions.

• Kohinoor Textile: As a yarn and fabric exporter, Kohinoor Textile Mills is also vulnerable to the downturn in global demand. Its export revenues are directly impacted by the willingness of international buyers to place orders. Like its peers, it contends with the challenge of elevated energy costs and the risk of gas curtailment, which can hinder its production capacity and competitiveness.

What to watch

Investors should closely monitor several key indicators to gauge the future trajectory of the textile sector. Firstly, global economic data, particularly retail sales and consumer confidence in major export markets like the US and Europe, will signal potential changes in demand for Pakistani textiles. Secondly, any revisions to domestic energy tariffs, including electricity and gas prices, will directly impact the cost structure of these companies. Thirdly, the government's policies regarding gas supply to industrial sectors and any support measures for exporters, such as duty drawbacks or subsidies, could provide some relief. Finally, the performance of the Pakistani rupee against the US dollar, while generally beneficial for exporters, needs to be weighed against the rising cost of imported raw materials and energy.