Pakistan's Textile Sector: Cotton Update

According to latest data released by the Pakistan Cotton Ginners Association (PCGA), the arrival of bales as of March 15, 2009 stands at 11.30mn bales. This is against 11.22mn bales on March 1, 2009 and against 11.26mn bales (estimated) on March 15, 2008. The latest statistics translate into a marginal 0.3%YoY increase in cotton arrivals. Looking at arrivals from cotton producing provinces, we see that even a 19%YoY pickup in cotton arrivals in Sindh (estimated) has failed to stimulate total cotton arrivals. According to our estimates, arrivals from the Punjab belt have decreased by about 5%YoY and have dampened overall cotton production. After attaining some stability previously, late cotton arrivals and sticky cotton prices continue to add onto the embedded problems of the sector. However, big players operating at a larger scale are somewhat hedged against the cotton shortfall and sticky prices as most of the annual cotton requirement has already been procured during the key buying season. From this vantage, we believe that NML offers an edge in the present operating environment and we recommend a Buy on the scrip.