Verdict
Faisal Spinning Mills Limited’s audited FY2026 result is a balance-sheet repair story wrapped around a weak earnings result. Net sales were almost unchanged, gross profit and gross margin declined, and the loss after tax widened to Rs413.54 million. Against that, a large inventory release generated cash, short-term borrowing fell by more than one-third, total debt declined materially and the current ratio improved. The business exited the year less leveraged, but not yet more profitable.
The headline 79% rise in profit before levies and taxation needs careful treatment. FY2026 other income included Rs411.55 million of non-cash notional interest income created by measuring a long-dated Sindh infrastructure-cess settlement at present value. Without that item, profit before levies and taxation would have been about Rs147.22 million, below FY2025’s Rs312.16 million. Minimum and final tax levies then exceeded pre-levy profit, while a Rs382.00 million prior-year tax charge drove the final loss deeper.
Results at a glance
The reporting basis is Faisal Spinning Mills Limited’s audited company financial statements for the year ended June 30, 2026. The auditor issued an unmodified opinion. Figures are in Pakistani rupees and comparisons are with FY2025 unless stated otherwise.
Net sales decreased 0.8% to Rs45.841 billion from Rs46.204 billion. Gross profit fell 5.1% to Rs3.487 billion from Rs3.674 billion, taking gross margin down to 7.61% from 7.95%. Distribution cost declined 4.7% to Rs1.435 billion, administrative expense increased 3.4% to Rs563.55 million, and finance cost was nearly flat at Rs1.505 billion.
Profit before levies and taxation rose to Rs558.77 million from Rs312.16 million, supported by the non-cash settlement gain and a Rs75.39 million share of profit from an associate versus a Rs17.91 million share of loss previously. Levies were Rs579.02 million, producing a Rs20.26 million loss before taxation. Taxation of Rs393.28 million, mostly relating to prior years, took the loss after tax to Rs413.54 million from Rs269.27 million. Loss per share widened to Rs41.35 from Rs26.93.
The Board declared no dividend, citing the loss, cash preservation and working-capital needs. That is consistent with the company’s still-heavy borrowing burden and the thin year-end cash balance despite a major improvement in operating cash flow.
AlphaGen model scores
These are AlphaGen model outputs rather than figures reported by FASM: Alpha QoQ Score: 90.62; TTM Performance Score: 62.07; 3Y Business Perf Score: 22.54; Sector Leadership Score: 47.67. The high quarterly signal sits beside a weak three-year score, which is directionally consistent with a late-year improvement occurring after several difficult annual results. The audited filing remains the basis for every financial conclusion below.
What improved
The clearest improvement was working-capital release. Stock in trade fell 35.1% to Rs11.092 billion from Rs17.084 billion and released Rs5.993 billion of cash. Trade deposits and prepayments released another Rs1.108 billion, while trade and other payables added Rs1.052 billion. These movements helped swing net operating cash flow to positive Rs6.723 billion from negative Rs5.473 billion.
Management used much of that cash to reduce funding. Net short-term borrowing repayment was Rs5.667 billion, and the closing short-term borrowing balance fell 35.1% to Rs10.503 billion. Including long-term finance and its current portion, total interest-bearing debt declined about 24.3% to Rs16.229 billion. The current ratio improved to 1.26 times from 1.19 times, while reported gearing declined to 1.38 times from 1.76 times.
The improvement should not be confused with recurring operating expansion. Inventory can only be released once before production and sales require replenishment. Even after the cash inflow, cash and bank balances fell 52.0% to Rs167.56 million because the company repaid debt, invested Rs1.097 billion in property, plant and equipment and purchased Rs393.06 million of short-term investments. The durable benefit is lower leverage; the FY2026 cash-flow magnitude is unlikely to repeat without another large working-capital release.
Spinning was the strongest operating segment. Segment revenue increased 14.9% to Rs17.670 billion and segment operating profit rose to Rs431.13 million from Rs160.19 million. Geographically, sales to China increased 32.6% to Rs13.009 billion. Actual yarn production increased 2.0% to 22.686 million kilograms. These gains show that selected markets and the spinning operation performed better even while consolidated sales were flat.
The company also continued its energy-transition program. It reports 4.80 MW of wind capacity and 7.10 MW of installed solar capacity, with another 2.19 MW solar project expected to begin production in October 2026. Completion would take the combined portfolio to 14.09 MW. The potential benefit is lower exposure to grid energy costs, but the filing does not quantify expected annual savings, so no earnings estimate is assigned here.
What weakened or needs attention
Underlying manufacturing profitability weakened. Gross profit declined despite a 7.8% reduction in raw-material consumption cost and an 8.1% decline in fuel, power and water expense. Salaries and benefits increased 2.5%, while depreciation charged through manufacturing rose materially. Inventory movements also mattered: the drawdown of finished goods added Rs2.054 billion to cost of sales in FY2026, compared with a Rs818.62 million reduction in cost in FY2025. The reported gross-margin decline therefore reflects both current production economics and the release of previously accumulated stock.
Weaving was the largest segment drag. Its revenue fell 14.9% to Rs11.620 billion and operating profit dropped 63.2% to Rs323.65 million. Actual fabric production declined 15.7% to 36.499 million metres. Finishing and home-textile revenue fell 3.5% to Rs16.551 billion, although its segment operating profit improved 5.9% to Rs869.27 million and production increased 6.7% to 42.133 million metres.
The export mix was stable but not growing. Gross export sales were Rs33.041 billion, effectively unchanged from Rs33.048 billion, and management says exports remained 72% of the sales mix. China grew, but sales to the United States fell about 30% and Germany declined about 31%. Local gross sales decreased 2.0%. The company also disclosed that one external customer accounted for Rs7.203 billion, about 15.7% of net sales, creating a meaningful concentration risk.
Finance cost decreased only 0.5% despite the sharp closing debt reduction. This likely reflects the timing of repayments and the high average borrowing carried through the year; it is an inference from the cash flow and debt balances, not a stated management explanation. Short-term borrowing markup alone was Rs1.115 billion. The State Bank’s policy-rate increase to 11.5% effective April 28, 2026 means further financing relief cannot be assumed solely from the macro backdrop.
Trade debts rose 10.8% to Rs4.363 billion, and sales-tax refundable balances increased 73.8% to Rs2.171 billion. Together, those two balances tied up more than Rs6.5 billion. The inventory reduction improved liquidity, but slower customer collections or delayed tax refunds could rebuild short-term funding pressure. The cash-flow statement already shows Rs430.82 million absorbed by trade debts and Rs921.68 million absorbed by sales-tax refunds.
The accounting bridge: why pre-levy profit rose but the net loss widened
The company agreed in April 2026 to settle outstanding or disputed Sindh infrastructure cess through installments extending to 2040. Accounting standards required the liability to be recognized at present value. That produced Rs411.55 million of notional interest income in FY2026, with future unwinding recognized as finance cost. This is economically different from cash generated by textile operations and should not be treated as recurring operating income.
After including that gain and the associate-profit swing, profit before levies and taxation reached Rs558.77 million. However, Rs573.02 million of minimum tax and Rs6.01 million of final tax were classified as levies, turning the result into a Rs20.26 million loss before taxation. The subsequent Rs393.28 million tax charge consisted mainly of Rs382.00 million relating to prior years. The widening net loss therefore reflects levies and tax as well as softer operating profitability.
This distinction also prevents a misleading mechanical comparison with older series that may combine tax and levies differently. On the audited FY2026 presentation, the defensible conclusion is: ordinary operations weakened, a non-cash settlement gain improved the pre-levy subtotal, and statutory charges more than reversed that benefit.
Cash flow and balance-sheet quality
Cash generated from operations before financing cost, retirement benefits and tax was Rs9.961 billion, compared with cash used of Rs3.055 billion in FY2025. Net operating cash was Rs6.723 billion after Rs1.579 billion of finance cost paid and Rs1.280 billion of taxes and levies paid. Subtracting Rs1.097 billion of property, plant and equipment additions leaves Rs5.627 billion before short-term investments and financing flows. This is a transparent calculation, not a company-reported free-cash-flow measure.
The balance sheet shrank as stock and borrowings came down: total assets fell to Rs34.348 billion from Rs39.737 billion, while equity declined to Rs11.762 billion from Rs12.171 billion after the comprehensive loss. Inventory still represented more than half of current assets, so exposure to cotton, yarn, fabric prices and order conversion remains substantial. Long-term financing increased modestly even as total debt declined, indicating a healthier maturity mix but not a low-debt position.
Historical and sector context
FASM has now reported three consecutive annual losses: Rs1.384 billion in FY2024, Rs269.27 million in FY2025 and Rs413.54 million in FY2026. That follows profits of Rs1.462 billion in FY2023 and Rs4.098 billion in FY2022. Gross margin has fallen from 19.87% in FY2022 and 12.11% in FY2023 to 7.61% in FY2026. The latest balance-sheet repair is important, but the longer cycle shows that profitability has not yet normalized.
Official sector evidence is mixed rather than uniformly weak. The Pakistan Economic Survey reported broadly stable textile exports in July-March FY2026, with value-added garments and bedwear more resilient than cotton cloth. Pakistan Bureau of Statistics data for the full year showed textile large-scale manufacturing down 0.63%. FASM’s flat exports, weaker weaving result and stronger spinning performance fit that uneven backdrop, although company-specific customer mix and execution remain the primary drivers.
What to monitor next
First, test whether the inventory reduction is orderly by watching gross margin, stock levels and the need to rebuild raw-material purchases. A further cash release is useful only if it does not sacrifice profitable sales or leave the company exposed when cotton prices or demand turn.
Second, track whether lower closing debt finally reduces quarterly finance cost. Third, monitor weaving volumes and margin recovery, because weaving erased much of the segment-level improvement. Fourth, watch receivables, sales-tax refunds and the concentration in one large customer. Fifth, separate future infrastructure-cess discount unwinding from textile operating performance.
The renewable-energy additions and stronger finishing output offer cost and product-mix opportunities, but evidence should come through lower energy cost per unit, stable quality, higher utilization and better consolidated margin. Export diversification also needs to offset weakness in the United States and Germany rather than relying increasingly on China or one major buyer.
Bottom line
FY2026 repaired FASM’s liquidity profile but did not repair its earnings engine. Inventory release and debt repayment were substantial achievements, and the company ended the year with a better current ratio and lower financing exposure. Yet sales were flat, gross margin narrowed, weaving weakened and the loss widened. The pre-levy improvement was heavily supported by a non-cash accounting gain. A convincing turnaround now requires recurring margin recovery and lower finance cost after the one-off working-capital benefit fades.
Sources
Primary audited filing: Faisal Spinning Mills Limited Annual Report 2026 (PSX PDF)
Exchange result notice: Pakistan Stock Exchange — FY2026 financial results
Exchange record: Pakistan Stock Exchange — FASM company page
Sector context: Pakistan Economic Survey 2025-26
Industry production context: Pakistan Bureau of Statistics — July-June 2025-26 industry data
Interest-rate context: State Bank of Pakistan Monetary Policy Statement, April 27, 2026