Weaving, spinning sectors profitability deteriorates in 1Q

LAHORE - Profitability of weaving and spinning sectors of textile industry deteriorated in the first quarter of fiscal year 2008-09. According to the financial results of 1QFY09, however, the composite segment has performed well showing a growth of 12.2 per cent in net earnings (after removing one time capital gain of Colony Mills Ltd).

For analysis, it was created a sample of 12 textile composite, 6 weaving and 25 textile spinning companies representing 78%, 94% and 70% market cap of their respective sectors.

Analysts said that amongst the three textile segments, only composite sector has shown positive growth of 12% in net profits to stand at Rs1.5bn. Top line of the segment grew by 34% to stand at Rs30.3bn primarily on the back of rupee depreciation enhancing rupee based export sales. Gross margins hence improved by 450bps to 21.3%. Negative impact on profits came from financial charges, which rose by 117% due to higher interest rates and a 34% fall in recurring other income.

For 1QFY09 period, the spinning sector has plunged into losses as it booked net losses of Rs474 million compared to profits of Rs249 million in 1QFY08. Net sales improved by 20%, whereas, gross margin stood at 12.5% depicting an increase of 100bps. Conversely, financial charges went up by a considerable 79% and stood at Rs1.5bn.

Weaving sector remained in losses in 1QFY09 as net loss of the segment stood at Rs24 million versus loss of Rs5 million in the same period last year. Although good growth in revenue and gross profit was witnessed, profits in the weaving sector were again a victim of higher financial charges. Similarly, other income, as in other segments, declined a good 92% providing no support to the bottomline.