Spinning Sector Overview

SPINNING | GOING FORWARD EXPECTATIONS PACRA • . • . Without any significant investments on new technology, it is expected that spinning sector will continue to operate as a low value addition and relatively low margin sector. The recent BMR activities spurred by SBP LTTF schemes is a good sign and should contribute towards higher production quality. The large players will enjoy better margins. This may result in consolidation as smaller players may struggle to survive. The sector remains reliant on the government support as it is a price taker on both ends. It is expected that the duty structure will continue to provide relief to the sector, going forward. The sector is expected to face increasing competition from other regional players in the international markets. This may result in increasing pressure on export margins. Timely and efficient procurement of cotton remains critical for the profitability of the sector. Although the output volumes declined significantly in 4QFY20, the capacity utilization has improved and volumes have started to recover to historic levels (July 20:286, 115 Tonnes). However, the pressure on margins will remain as demand is expected to remain volatile in current environemnt. The sector will face cash flow and liquidity issues in case second wave of COVID-19 spreads, which will result in another round of hold on or cancellation of orders. Although the financial risk is high for the sector, the recent cut in interest rates and deferment of loan repayments will provide short-term relief. 30

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