Spinning Sector Overview

SPINNING | CONCLUSION PACRA • . • . The absence of value addition, minimal investment in new technologies and relatively lower economies of scale have impacted the position of the sector in international markets in the preceding decade. The installed capacity and production of the sector remained almost stagnant over the last several years. Despite relatively stable export quantity, exports of the sector declined in dollar terms by ~6% since FY16. The sector has not fully capitalized on strong local supply chain, government policy support, depreciating rupee, and financial support in the form of subsidized financing from SBP and subsidized energy prices. Although margins and profitability of the sector have improved in recent years, it largely remains a factor of gains on rupee depreciation and prudent cotton buying. The sector has not been able to gain much in terms of volumes. The margins remained under pressure during 4QFY20 owing to sub-optimal capacity utilization amid lockdowns. Further, the net margins of the sector remained negligible and profitability of the sector will be impacted due to low sales and margins in 4QFY20. The sector has moderately leveraged capital structure on the back of lower ability to generate operating cash flows amid low margins. The sector avails majority of borrowings at commercial rates. The infection ratio of the sector is significantly higher than overall corporate sector infection ratio, reflecting financial risk. 29

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