KARACHI - The recent hike in gas prices of 31 percent for fuel gas and 68 percent for captive power plants is going to significantly subdue textile manufacturing margins. Most of the textile manufacturers had invested in captive power plants running on gas, which shielded them from frequent loadshedding besides resulting in cost savings. However, the 68 percent rise in gas tariffs is going to hurt the feasibility of these investments. The removal of R&D subsidy will further depress the profitability of textile manufacturers. Being an export oriented industry, textile manufacturers are competing in a highly competitive international market, giving very little pricing power and thus reducing ability to pass on the cost increases, analyst said. The recent depreciation of Pakistani rupee against the USD (17% CYTD to Rs71.7) is a positive for the textile sector making exports more competitive and improving PKR revenue. Yet imported inputs such as chemicals and dyes will add to the COGM, while on the international front the Indian Rupee has also depreciated by 9pc CYTD against the USD which means intensified competition from India at the same time. Meanwhile, last years cotton crop was plagued with pest attacks and contaminated BT cotton seeds, which contributed to an 8.7 percent Year-on-Year decline in cotton yields to 649kg/hec and overall reduction in cotton crop size to 11.7 million bales (-9.4% YoY) in FY07. Textile manufacturers had to look more towards expensive imported cotton to meet their requirements. In FY08, average cotton prices, both local and international rose YoY by 23.9% and 23.5% to Rs3, 156/maund and USD0.72 /pound respectively. As per media reports, local cotton plantation acreage for the current Kharif season may be lower by 15%-20%. Similarly international cotton production is also estimated to be lower in FY09, which is expected to keep cotton prices high, going forward.