Page 10 - InTheLoop(Jan-Mar,2021)

inside the loop

Textile Policy Should Have Statutory Protection, says Chairman Interloop

The past few months saw hype about the textile sector,
posting consistently high exports and is in the process of
getting a new policy with reportedly favourable terms
approved. To better understand what’s ahead for the industry,
Mettis Global, a leading business news agency had an
insightful chat with Musadaq Zulqarnain, Chairman Interloop
Limited & Interloop Holdings. Below are some excerpts from
the interview.

The company’s full-year profitability plunged by 65%
during FY20. Can you explain why?
MZ: Primarily there were two reasons: first, we were in
expansion phase and the last two quarters took a serious hit
as orders got cancelled due to COVID-19 pandemic.
Production completely shut down and we had to pay salaries,
which costs around Rs 650-700 million a month, and the Musadaq Zulqarnain, Chairman Interloop Limited & Interloop Holdings
company didn’t let anyone go. Also, every year, the rupee
depreciates, resulting in a windfall in receivables. However, How much of a net impact does rupee devaluation have
this time, the local currency got stronger, and we had to make on an export unit, considering a major chunk of input
accounting adjustments accordingly. These were the main costs are for energy, which move along with the
reasons and you can see that the results of the next two exchange rate?
quarters are phenomenally better, despite no marketing due
to travel restrictions. MZ: Quickly devaluing the currency also negatively affects
the exports as the buyer immediately asks for a decrease in
How sustainable are the renewed profitability and order price. On the other hand, our costs jump since all the
flows considering two opposing factors: the lockdowns commodities go up. If 50% of my costs are raw materials,
in Europe and the vaccine rollout? they automatically adjust. Similarly, energy automatically
adjusts. All we benefit from depreciation is a small share of
MZ: Generally speaking, in the short term, there will be some labour costs, and if we have to pass that on to the customer
delays in orders from Europe as it is in a severe lockdown. as well, then it’s a loss for us.There is a thumb rule: the
Lots of brick and mortar retailers there have relatively smaller adjustment should be more or less equal to the difference
online presence than the US players, so there will be an between our and the trading partner’s inflation rate. But it has
impact, but not as bad as the first wave. The vaccine rollout to be done gradually, not with the State Bank’s interference.
has ignited a hope but nobody knows how long it will take.
Lastly, the orders also depend on the broader macro What’s your view of the upcoming textile policy and how
economy. If the disposable income is shrinking, then people that can boost exports?
won’t really be buying clothes, therefore demand might take a
small hit in the coming 2 - 4 months as well. However, good MZ: For the first time, the textile sector was taken on board,
stimulus in the West can result in better disposal incomes and and the commerce adviser to the PM created a committee of
better sales. industry experts, and let us make the policy which is yet to be
approved. However, the policy can be reversed on a single
Textile exports seem to be finally picking up the pace individual’s whim, say, by the new administration. So in my
after staying flat for the longest time. What exactly has view, there should be statutory protection for any policy in
changed? order to be effective. To make sure the industry also sticks to Article Ref: https://mettisglobal.news/textile-policy-should-have-statutory-protection-interloop-chairman
its end of the bargain, the government can base the
MZ: The fact that Pakistan operates in a very basic segment, incentives on meeting certain key performance indicators.
like t-shirts, fleece garments, underwears, socks, and jeans
etc, proved to be a blessing in disguise. All of these happened For apparel and value added garments, the thumb rule is that
to be in high demand during COVID-19, so the orders grew the asset turnover ratio will be at a maximum 2:1. So if we
while orders of fashionable garments were down. Secondly, need to increase exports by $10 billion, then we’ll have to
consumption of home textiles, which is our strong suit, went invest $5 billion. Now on that $25bn target, apparel currently
up. There’s another largely unnoticed factor: a huge share of occupies around $7bn in the overall textile sector exports,
garments and knitwear supply in the US comes from Central and in order to take that to $15-20bn, you will need $8-10bn
and South America, and all those countries were badly hit by of investments in technology.
COVID-19. A fraction of that demand was diverted to Pakistan,
which was on top of some orders from India and even China. In order to do that, the industry also has to incur the cost of
Then obviously the exchange rate became reasonably infrastructure, such as by installing captive plants, roads or
favourable as well, which was coupled with energy rates different types of boilers. Meanwhile, the alternate ways of
getting more competitive with the rest of the markets. All of making wealth have been made so much easier that it leaves
these fueled the export growth in the value added garments. little incentive for anyone to actually make investments.

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