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Azgard Nine FY26: Garment Growth Lifts Profit as Cash Flow Tightens

Azgard Nine’s FY26 profit rose 24% as garment growth and lower finance cost outweighed weaker margins, while capex and receivables tightened cash conversion.

Oct 14, 2026ANLShare price, results & dividends

Verdict

Azgard Nine Limited delivered a 24% increase in profit after tax for the year ended 30 June 2026, but the headline improvement was narrower than it first appears. Revenue grew 4.7%, finance cost fell sharply and the combined levy and income-tax burden was lower. Against that, gross margin compressed, operating profit declined, receivables expanded much faster than sales, capital spending exceeded operating cash generation and current liabilities rose faster than current assets.

The strongest operating contribution came from garments. Garment external revenue and gross profit grew while spinning and weaving revenue contracted. This mix shift helped protect earnings in a difficult textile market, but it also increased concentration: two customers accounted for almost 38% of annual sales. FY26 therefore represents a profitable but cash-intensive transition toward value-added exports, not a broad-based recovery across every operating segment.

Results at a glance

  • Reporting basis: audited unconsolidated financial statements of Azgard Nine Limited for the year ended 30 June 2026. Monetary figures are Pakistani rupees unless stated otherwise.
  • Net sales: Rs42.500 billion, up 4.7% from Rs40.602 billion.
  • Gross profit: Rs5.052 billion, up 1.5%; gross margin eased to 11.89% from 12.26%.
  • Operating profit: Rs2.593 billion, down 10.6% from Rs2.901 billion.
  • Finance cost: Rs785.3 million, down 30.6%; separate notional interest expense was broadly unchanged at Rs317.0 million.
  • Profit before income tax after levies: Rs978.8 million, up 3.6%. Profit after tax: Rs869.9 million, up 23.9%.
  • Earnings per share: Rs1.77 versus Rs1.43. No dividend was declared because cash is being retained for operations and restructuring obligations.
  • AlphaGen model scores: Alpha QoQ Score 72.15; TTM Performance Score 49.13; 3Y Business Perf Score 47.46; Sector Leadership Score 59.8574. These are AlphaGen analytical model outputs, not figures reported by Azgard Nine.

What improved

The bottom line benefited most clearly from lower financing and tax pressure. Finance cost fell by Rs346.0 million to Rs785.3 million, more than offsetting the Rs308.4 million decline in operating profit. Notional interest expense remained material at Rs317.0 million, so total financing-related charges were still above Rs1.10 billion. Even so, the year-on-year saving was decisive.

Profit before levies and income taxes increased only 2.6% to Rs1.491 billion. After Rs511.9 million of levies, profit before income tax was Rs978.8 million, 3.6% higher. The income-tax charge then fell to Rs109.0 million from Rs243.2 million, allowing profit after tax to increase 23.9% to Rs869.9 million. This bridge shows why the PAT growth rate substantially exceeded the improvement in pre-tax earnings.

Management attributes resilience to cost control, process improvements and a greater focus on value-added products. The segment accounts support the product-mix part of that explanation. Garment external revenue rose 16.5% to Rs30.99 billion and garment gross profit increased 28.6% to Rs2.66 billion. Garments generated about 73% of external revenue and became the clearest source of growth.

The geographic mix also moved toward core export markets. Total foreign revenue reached Rs40.69 billion, equal to 95.8% of sales. European revenue increased to Rs29.41 billion from Rs26.94 billion, while North American revenue more than tripled to Rs2.26 billion from Rs734.5 million. These gains outweighed declines in Asia, indirect exports and local sales.

Production data tell a similar story. Garment output rose 16.1% to 13.48 million pieces after installed capacity increased to 15.37 million pieces from 13.13 million. Utilization remained high at about 87.7%, only slightly below the prior year’s 88.4%. Weaving utilization improved modestly to 59.0%, while spinning utilization fell to 41.9% from 48.0%.

The Q4 bridge

Subtracting the official unaudited nine-month statement from the audited full year produces a reproducible fourth-quarter bridge. Q4 revenue was approximately Rs11.625 billion, up 21.2% from Rs9.594 billion in the comparable FY25 quarter. Gross profit increased 13.2% to Rs1.489 billion, but gross margin declined to 12.81% from 13.71%.

On a like-for-like definition, the fourth-quarter core operating subtotal before other expense and expected-credit-loss charges declined 11.7% to about Rs844.1 million from Rs956.3 million. After those items, the comparable derived operating result was approximately Rs781.6 million versus Rs933.2 million, down 16.2%. Fourth-quarter finance cost fell about 25% to Rs194.7 million, while profit before levies and income taxes was around Rs510.2 million versus Rs564.0 million.

Q4 profit after tax nevertheless rose 28.7% to Rs370.4 million because the combined fourth-quarter levy and income-tax charge fell to about Rs139.8 million from Rs276.3 million. These quarterly numbers are derived from an audited twelve-month statement and an official nine-month statement; they are not separately published discrete-quarter accounts.

What weakened or needs attention

The gross-margin trend remains the first operating concern. Cost of sales increased faster than revenue, leaving gross profit growth at only 1.5%. Full-year gross margin contracted by 0.37 percentage points. The Q4 bridge shows an even larger 0.90-point contraction despite strong sales growth, suggesting that volume and mix gains did not fully absorb production and input costs.

The segment detail is uneven. Weaving external revenue fell 15.5% and weaving gross profit declined 19.2%. Its segment profit from operations dropped to Rs1.34 billion from Rs1.89 billion. Spinning external revenue fell 27.1% and the segment remained loss-making at the operating level. Garment strength therefore compensated for weakness elsewhere rather than reflecting a synchronized recovery.

Company-wide operating profit fell 10.6%. Other income decreased to Rs760.3 million from Rs848.5 million, administrative expense rose 23.7%, other expense increased 28.2%, and the company recorded a Rs42.9 million expected-credit-loss allowance versus a Rs53.9 million reversal in FY25. Selling and distribution expense did decline, but not enough to offset these movements.

Cash flow and investment intensity

Net cash generated from operating activities was Rs2.177 billion, down 10.0% from Rs2.419 billion despite higher profit. Capital expenditure rose 50.1% to Rs2.970 billion, producing a simple operating-cash-flow-minus-capex deficit of about Rs793 million, compared with a positive Rs440 million in FY25. The audited cash-flow statement also shows a Rs3.53 billion net investing outflow.

The investment surge is visible in property, plant and equipment, which rose 18.4% to Rs14.32 billion. Management says the biomass facility’s civil, structural and mechanical components were completed and capitalized by year-end, while its steam turbine remained in final testing. The project is intended to reduce reliance on grid and conventional energy, but FY26 cash flow captures the cost before any full-year operating benefit.

Working-capital quality weakened. Trade receivables grew 30.9% to Rs5.05 billion against sales growth of 4.7%. Tax refunds due from government increased 42.0% to Rs1.64 billion. Inventory was broadly stable at Rs5.71 billion, but trade and other payables rose 31.4% to Rs4.80 billion. This pattern is consistent with management’s warning that delayed tax refunds and export taxation are tying up liquidity.

Current assets increased 3.2% to Rs17.38 billion, while current liabilities rose 19.0% to Rs10.64 billion. The current ratio consequently fell to 1.63 from 1.88. Cash and bank balances declined to Rs1.07 billion from Rs1.25 billion, and the cash-flow statement ended with negative cash equivalents of Rs328.5 million after bank-overdraft effects.

Financing and restructuring risk

Short-term borrowings rose to Rs3.96 billion from Rs2.69 billion. The audited balance sheet also carries redeemable capital, current maturities, new long-term borrowings and lease liabilities. Because the classification of these obligations changed between periods, they should be assessed from the audited components rather than a mechanically compared aggregate debt series.

Management reports that principal and markup obligations under the restructuring schedule were serviced on time. It also says preference-share dividends were cleared and principal plus accrued markup continue to be settled. However, the creditors’ scheme includes a Rs4.97 billion balloon payment due in April 2031. The company is transferring Rs710.17 million annually into a redemption reserve for that obligation.

No ordinary dividend was declared. The Board explicitly links this decision to restructuring payments, the 2031 balloon obligation, higher working-capital needs and the requirement to preserve internal cash. That stance is consistent with negative simple free cash flow in FY26, even though accounting profit and operating cash flow remained positive.

Concentration and external exposure

Two customers generated Rs16.13 billion of revenue, equal to about 38.0% of annual sales, up from Rs12.37 billion or roughly 30.5% a year earlier. The customer base therefore became more concentrated at the same time as export exposure increased. A loss of orders, tougher payment terms or customer-specific inventory adjustment could have an outsized effect on sales and receivables.

The broader textile backdrop was subdued. Pakistan’s Economic Survey reported textile and apparel exports of about US$13.5 billion in July-March FY26, down 0.5%, with value-added categories more resilient than intermediate cotton cloth. The Pakistan Bureau of Statistics later reported that total merchandise exports for the full fiscal year fell 5.9% in US-dollar terms. Against that setting, Azgard Nine’s garment-led revenue growth represents relative resilience rather than an easy sector tailwind.

Management also identifies energy tariffs, freight disruption, raw-cotton volatility, wage increases, export taxation and delayed sales-tax refunds as material pressures. These are company-disclosed risk factors. The financial statements quantify their combined transmission through margin, working capital and finance cost, but do not provide a reliable rupee attribution for each driver separately.

Historical perspective

FY26 revenue was the highest in the eight-year statement history returned by AlphaGen, but profitability remains below the earlier peak. Gross margin has declined from 16.1% in FY23 to 11.9% in FY26, while net margin fell from 4.7% to 2.0%. The FY21 profit spike was dominated by non-operating items and is not a useful recurring benchmark.

The longer trend nevertheless shows balance-sheet repair from the stressed 2019-2021 period. Equity increased to Rs15.64 billion from roughly Rs1.12 billion in FY20, supported by retained earnings, reserves and revaluation movements. The current task is different: convert value-added growth and capital investment into durable operating margin and cash without rebuilding excessive short-term financing pressure.

What to monitor next

  • Garment order durability: track whether garment revenue and gross profit continue to grow after the FY26 capacity expansion.
  • Gross margin: Q4 sales accelerated but margin contracted; improvement requires better pricing, mix or conversion cost.
  • Receivable collection and tax refunds: both grew much faster than sales and are important to cash conversion.
  • Biomass commissioning: verify commercial operation, energy savings and whether the benefit appears in gross margin rather than only sustainability disclosures.
  • Financing obligations: watch short-term borrowings, current maturities, preference-share settlements and annual transfers into the 2031 redemption reserve.
  • Customer concentration: two customers now represent nearly 38% of revenue.
  • Cash discipline: operating cash must cover capex and restructuring payments before an ordinary dividend becomes sustainable.

Bottom line

Azgard Nine’s FY26 profit growth is credible, but its quality is mixed. Garment-led export growth, lower finance cost and a reduced tax charge lifted PAT and EPS. The audited segment data show genuine value-added momentum, and the biomass investment could support future cost competitiveness.

At the same time, gross margin and operating profit declined, Q4 operating conversion weakened, receivables expanded sharply and capex pushed simple free cash flow negative. The key test for FY27 is whether the garment and energy strategy can widen operating margins and release working capital, rather than relying on lower finance and tax charges to sustain bottom-line growth.

Sources and methodology

Company figures come from the audited FY26 annual report and the official nine-month FY26 interim report. Quarterly bridges are calculated by subtracting the nine-month cumulative figures from the audited full year on a common reporting basis. Sector comparisons use Government of Pakistan sources. AlphaGen was used for internal cross-checking, history and the four explicitly labeled model scores; it is not a public citation for reported financial figures.

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