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Al-Khair Gadoon FY26: Sales Slip, but Q4 Margins Recover

Al-Khair Gadoon’s FY26 sales and earnings weakened, but implied Q4 margins improved sharply. Finance cost, demand and working capital remain the key watchpoints.

Sep 26, 2026

Company Name: Al-Khair Gadoon Limited

Ticker: AKGL

Reporting period: year ended June 30, 2026. The September 25, 2026 PSX filing is the company-level year-end result. The latest detailed interim statements available for the Q4 bridge are the unaudited nine-month statements to March 31, 2026. The full FY2026 annual report and independent auditor’s report were not yet available on the company/PSX investor pages checked for this analysis, so no auditor-opinion conclusion is made here.

AlphaGen model scores

  • Alpha QoQ Score: 57.00
  • TTM Performance Score: 16.07
  • 3Y Business Perf Score: 43.42
  • Sector Leadership Score: 41.08

These four figures are AlphaGen model outputs, not company-reported figures.

Verdict

Al-Khair Gadoon finished FY2026 with weaker full-year earnings but a more encouraging closing-quarter operating mix. Annual sales fell 6.8%, gross profit declined 8.2%, operating profit dropped 19.8%, and profit after tax fell 54.4% to Rs7.82 million. The deterioration was not driven by one dramatic exceptional charge; it reflected a softer revenue base, a small gross-margin squeeze, heavier operating-cost absorption and a 7.3% increase in finance cost. Yet the implied June quarter tells a different story: revenue fell sharply year on year, but gross profit was roughly flat and operating profit increased, lifting the quarter’s gross margin to about 17.6% from 12.0%. The next result cycle therefore needs to answer whether that Q4 margin recovery was a sustainable improvement in pricing, product mix and input economics or simply a quarter-end fluctuation.

Results at a glance

  • FY2026 net sales were Rs1.304 billion, down 6.8% from Rs1.399 billion in FY2025.
  • Gross profit declined 8.2% to Rs159.5 million. Gross margin slipped to 12.23% from 12.41%.
  • Operating profit fell 19.8% to Rs47.9 million, taking operating margin down to 3.67% from 4.27%.
  • Finance cost increased 7.3% to Rs33.3 million despite lower year-end borrowings, showing that the earnings drag from funding remained meaningful.
  • Profit after tax fell 54.4% to Rs7.82 million from Rs17.15 million; EPS declined to Rs0.78 from Rs1.71.
  • No cash dividend, bonus issue or rights issue was announced with the result.
  • The official nine-month statements showed sales up only 1.6% through March while gross profit fell 10.9%, establishing that most of FY2026’s profitability pressure occurred before the closing quarter.
  • Full-year operating cash flow improved to a positive figure after the prior year’s negative outcome, but cash at year end remained lower and inventory stayed elevated.

What improved

The strongest improvement was the implied fourth quarter. Subtracting the official nine-month numbers from the official FY2026 result gives Q4 sales of about Rs241.5 million, down 31.6% from roughly Rs353.2 million in Q4 FY2025. Ordinarily that degree of revenue decline would create severe operating deleverage. Instead, Q4 gross profit was about Rs42.5 million in both years. Cost of sales fell about 36.0%, faster than revenue, and implied Q4 gross margin expanded to roughly 17.6% from 12.0%.

That margin improvement flowed below gross profit. Implied Q4 operating profit was about Rs14.2 million versus Rs10.5 million a year earlier, an increase of roughly 35%. This is important because the nine-month statements had shown the opposite pattern: July-March sales were almost flat year on year, but gross profit fell from Rs131.2 million to Rs117.0 million and operating profit fell from Rs49.2 million to Rs33.7 million. The closing quarter therefore reversed part of the earlier margin deterioration even though volume or pricing, as reflected in revenue, was much weaker.

The company’s year-end balance sheet also appears somewhat less leveraged than a year earlier. Short-term and total borrowings were lower at year end, while current liabilities declined and equity increased modestly. The current ratio improved to roughly 1.57x from about 1.50x. This is not a low-leverage balance sheet—debt remained close to equity—but the direction is better than FY2025.

Cash conversion also improved late in the year. At March 31, 2026, the company had used about Rs9.0 million of cash in operating activities compared with Rs50.3 million generated in the comparable nine months. The full-year result, however, indicates that operating cash flow ended positive, implying a meaningful Q4 reversal. That late improvement matters because it shows the income-statement recovery was accompanied by some release or better management of working capital rather than being purely accrual-based.

What weakened / needs attention

The full-year earnings picture remains weak. Sales fell 6.8%, but operating profit fell almost 20%, meaning the business did not fully flex its operating cost base down with revenue. Gross margin only slipped by about 19 basis points, so the larger deterioration between gross profit and operating profit points to overhead and distribution-cost pressure rather than a collapse in manufacturing margin alone.

The nine-month directors’ report helps explain this. Management said profitability was pressured by higher cost of sales, increased distribution expenses and broader margin pressure. It specifically cited rising labor costs, higher energy tariffs, more expensive imported raw materials and higher conversion costs. It also said reduced consumer purchasing power at retail adversely affected demand for foam and allied products. Those are management’s explanations, not independent proof of the weight of each factor, but they are consistent with the nine-month accounts: distribution expense increased while sales barely grew, and gross profit fell despite the top line being slightly higher.

Finance cost is another important drag. Full-year finance cost increased 7.3% to Rs33.3 million from Rs31.0 million. At March 2026, short-term borrowings were about Rs368.5 million, almost unchanged from June 2025. By year end borrowings had fallen, but the annual finance charge still rose. That means the benefit from lower closing debt did not yet translate into lower annual financing expense. Average borrowings, timing and facility pricing matter more than the closing balance, and the year-end result does not provide enough note detail to isolate the exact driver.

The bottom line weakened much more than operating profit. PAT fell 54.4% to Rs7.82 million, and the reported tax expense increased to about Rs17.0 million from Rs13.6 million. The compact year-end result does not provide the detailed tax and levy reconciliation normally found in an annual report, so it would be premature to assign the bottom-line decline to any specific tax provision or exceptional adjustment. The full annual report should be used to reconcile current tax, deferred tax, minimum/turnover levies and any prior-year adjustments.

Liquidity is improved in ratio terms but not comfortable in cash terms. Year-end cash and bank balances were materially lower than a year earlier, while inventory was higher. Inventory had already risen to about Rs475.4 million by March from Rs411.6 million at June 2025 and remained elevated at year end. A foam manufacturer with imported raw-material exposure may deliberately hold stock for supply assurance or pricing reasons, but the company has not disclosed enough detail to determine how much of the build was strategic versus slow-moving. The next cycle should therefore be read alongside inventory days, payable days and borrowing utilization, not just reported profit.

Why FY2026 changed economically

The year can be split into two phases. Through March, demand and cost pressure dominated. Nine-month sales rose only 1.6%, while gross profit fell 10.9% and operating profit fell 31.5%. Management’s commentary points to a difficult consumer environment and higher production and distribution costs, particularly imported raw materials, energy and labor. Because foam and mattresses are discretionary household products, weaker purchasing power can affect both volumes and product mix, encouraging consumers to trade down or postpone purchases.

The fourth quarter then showed a large improvement in gross-margin conversion despite lower revenue. The public filings do not disclose Q4 volume, product-level pricing, raw-material consumption or channel mix, so the cause cannot be stated with confidence. The most defensible interpretation is that some combination of product mix, selling prices, input-cost movement, inventory accounting and production efficiency improved relative to the prior-year closing quarter. That is an inference from the financial pattern, not a management statement.

Broader manufacturing conditions were not uniformly weak. Pakistan Bureau of Statistics reported that overall large-scale manufacturing grew 4.98% in FY2026, although June output fell 3.48% year on year and 6.08% month on month. That makes it difficult to describe AKGL’s 6.8% annual sales decline as simply a reflection of an economy-wide industrial contraction. The company’s own commentary on consumer purchasing power and competition is therefore more relevant to its result than the headline LSM index.

A listed foam peer, Diamond Industries, also showed that company-specific conditions mattered. Diamond’s March 2026 quarter recorded positive sales and profit after a highly disrupted prior year. Its financial history is too abnormal to use as a clean benchmark for AKGL, but it confirms that the sector did not move in one uniform direction. Competitive positioning, utilization, channel mix and working-capital access likely differed materially across firms.

Recurring versus exceptional earnings

Most of AKGL’s FY2026 pressure looks recurring rather than exceptional. Lower sales, gross-margin pressure, distribution costs and finance cost all sit inside the normal operating model. The public year-end result does not show a large disposal gain, impairment or other obvious one-off that would explain the earnings decline.

The Q4 margin recovery could become recurring, but it has not yet earned that label. One quarter with a 17.6% implied gross margin is encouraging, especially after a weak nine-month trend, but without volume, pricing and input-cost detail it should be treated as a signal to verify rather than a new normalized margin.

Tax expense is the main area where the annual report may reveal non-recurring or timing effects. Until the detailed note is published, the safest approach is to focus on pre-tax operating economics and cash conversion and treat the tax bridge as unresolved.

What changed versus the historical pattern

AKGL’s revenue has expanded substantially from the early part of the decade, but earnings have not compounded with it. PSX data show FY2022 sales of about Rs1.156 billion and PAT of Rs30.6 million; FY2023 sales were about Rs1.063 billion with PAT of Rs13.0 million; FY2024 sales rose to Rs1.278 billion and PAT recovered to Rs27.3 million; FY2025 sales reached Rs1.399 billion, but PAT slipped to Rs17.1 million. FY2026 then combined lower sales of Rs1.304 billion with PAT of only Rs7.8 million.

The pattern is therefore not simply “sales down, profit down.” The more important change is that the business is generating less bottom-line profit per rupee of revenue than it did several years ago. Net margin was around 2.6% in FY2022, roughly 2.1% in FY2024, 1.2% in FY2025 and only about 0.6% in FY2026. The next durable improvement must therefore come from margin and financing economics, not merely top-line recovery.

What to monitor next

  • Q1 FY2027 sales: whether the large Q4 revenue decline persists or reverses.
  • Gross margin: whether the implied Q4 margin near 17.6% can hold above the FY2026 average of 12.2%.
  • Distribution and administrative costs: whether the cost base becomes more flexible if sales remain soft.
  • Imported raw-material and energy costs: management has identified both as material pressures, so any quantified change in unit input cost would be useful.
  • Inventory: whether elevated stock converts into sales without requiring higher short-term borrowing.
  • Finance cost: whether lower year-end borrowing finally produces a lower quarterly financing charge.
  • Operating cash flow: whether the Q4 improvement persists and converts into higher cash balances.
  • Tax and levy detail: the FY2026 annual report should clarify why reported tax expense increased despite weaker earnings.
  • Consumer demand and product mix: management’s comments on purchasing power make volume and mix disclosure especially important.
  • Payout policy: no dividend was declared for FY2026, so any future distribution will depend on stronger profitability, liquidity and cash conversion.

Overall

Al-Khair Gadoon’s FY2026 result is weaker at the headline level but more nuanced underneath. The year delivered lower sales, weaker operating profit, higher finance cost and a 54% drop in PAT. Yet the closing quarter produced a much stronger gross margin and higher operating profit on a sharply smaller revenue base, while cash conversion improved late in the year. That is enough to make the Q4 recovery worth watching, but not enough to call it a new earnings trend. The next result should be judged on whether margin recovery survives, sales stabilize, finance cost begins to fall and working capital releases cash without sacrificing operating progress.

Public sources

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