You may have seen the same posts floating around on your Instagram feed or
Here is the truth: the textile industry is receiving a lot of orders for PPE-related fabric. This is good news for both this country's doctors, and also for textile mills. Now, the bad news: these orders are simply not enough. They are often one time, non-repetitive, and have low margins. Even
Thankfully, it was only up from there: exports in May rose 45% when compared to April. They were buoyed by pent-up demand and relaxations in lock-downs across the globe.
However, on a yearly basis, exports in May still fell 33.6%. 'Our correspondence with the leading exporters suggests an overall bleak picture over the short-medium term,' said Farooq.
So, what is going on? First, the aforementioned PPE problem. Most new orders booked have been for this fabric, but they have low margins. Second, the advance order book, which is usually booked for three to six months, has now been reduced to a few days. Third, fashion fabric has basically completely collapsed, the worst hit being denim. This makes sense: in the middle of a pandemic, the last thing on consumers' minds is where to buy the latest jeans. New orders in this area are close to none. Even though there was a significant backlog, clients canceled due to lack of demand, and exporters were unable to deliver due to disruptions in the supply chain.
These conditions are creating the perfect storm for
That is why Farooq estimates that
Previously, AKD research noted
Ok, but surely, a large enough company like
And that is a significant cushion: in fact, income contribution from the portfolio companies to the company's operating profitability stood at more than 50% in the last five years. Most of that comes from three sectors: power, banking, and cement.
However, Covid-19 is not just any shock. It is the kind of shock that affects every sector of the economy, including the ones listed above.
As is, the income from the power sector holdings had been limited. The liquidity crunch in the power sector meant that dividend income fell from the average of 37% between fiscal year 2014 and 2018, to just 17% in fiscal year 2019. But according to Farooq, the government's tough stance on independent power producers, plus the effect of Covid-19, means that income is set to decline even further.
'We revise down our expectations for payouts by 40-60% over the investment horizon. This results in a reduction in portfolio value by
Covid-19 has also impacted banking, as the
There is one silver lining from the central bank's actions, however. Cement holdings have improved, helped by a drop in commodity prices, as coal dropped 35%, and a support package from the government. In addition, there is a chance of loan deferral and an improvement in cement operations in the medium term. Farooq estimates that
So the final verdict?
© Pakistan Press International, source