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Faisal Spinning Mills Q3 FY26: Margin Pressure and Finance Costs Outrun the Sales Base

Faisal Spinning Mills’ Q3 FY26 sales declined while margins compressed and finance costs rose, turning a prior-year quarterly profit into a loss despite strong nine-month cash release.

Sep 21, 2026

Verdict

Faisal Spinning Mills’ March quarter was weaker than the nine-month headline suggests. Q3 FY26 sales fell 8.8% year on year to Rs10.89 billion, gross profit fell 27.9%, and the company swung from a Rs43.3 million quarterly profit to a Rs206.8 million loss. The immediate problem was not a collapse in revenue alone: gross margin compressed, finance cost stayed heavy, and the associate moved from a small quarterly contribution to a loss.

The nine-month picture is more nuanced. Sales declined 4.7%, but gross margin was broadly stable at about 7.4%. Operating cash flow improved dramatically to Rs4.92 billion, largely because inventory was released and supplier balances increased. That cash was then used to reduce short-term borrowing and fund investment. The result therefore shows better working-capital management and lower period-end short-term debt, but not yet a recovery in recurring earnings.

Results at a glance

  • Company Name: Faisal Spinning Mills Ltd
  • Ticker: FASM
  • Reporting period: Third quarter and nine months ended March 31, 2026.
  • Reporting basis: Company-level condensed interim financial statements in Pakistani rupees. The March 2026 financial information is unaudited; the comparative statement of financial position is the audited June 30, 2025 balance sheet. The company accounts for its 18.49% interest in Blessed Textiles Limited as an associate using the equity method.
  • Q3 FY26: sales Rs10.89bn, down 8.8%; gross profit Rs744.2m, down 27.9%; finance cost Rs389.4m, up 13.4%; loss after tax Rs206.8m versus profit of Rs43.3m; EPS negative Rs20.68 versus positive Rs4.33.
  • 9MFY26: sales Rs34.21bn, down 4.7%; gross profit Rs2.54bn, down 4.2%; finance cost Rs1.25bn, up 22.3%; loss after tax Rs564.9m versus Rs305.7m loss; EPS negative Rs56.49 versus negative Rs30.57.

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

  • Alpha QoQ Score: 11.11
  • TTM Performance Score: 56.02
  • 3Y Business Perf Score: 22.37
  • Sector Leadership Score: 25.49

What improved

The strongest improvement was cash generation. Net cash from operating activities reached Rs4.92 billion in 9MFY26 versus a Rs2.92 billion outflow a year earlier. This was not driven by profit growth. Operating cash flow before working-capital changes was Rs2.08 billion, only modestly above Rs1.96 billion in the comparable period. The decisive shift came from working capital.

Inventory released Rs3.52 billion of cash during the nine months, reversing a Rs3.82 billion inventory build in the prior-year period. On the balance sheet, stock in trade fell 20.6% from June 2025 to Rs13.57 billion. Trade and other payables contributed another Rs2.36 billion of cash and ended 48.2% above June. Those movements transformed cash generated from operations before finance, employee-benefit and tax payments to Rs6.99 billion.

Management also continued operating investment. A newly commissioned 4.70 MW solar project lifted installed solar capacity to 7.21 MW, alongside a 4.80 MW wind project, taking the disclosed renewable portfolio to 12.01 MW. In Finishing Unit III, the Stenter and Digital Printing operations began commercial production in January 2026; the Washing Process started after the reporting date in April 2026. These projects matter because energy intensity and value addition are central to textile economics, although their full earnings contribution cannot yet be isolated from the filing.

What weakened / needs attention

Q3 margin compression is the clearest weakness. Gross margin fell to about 6.84% from 8.65% a year earlier. Sales were lower by roughly Rs1.05 billion, but gross profit fell by about Rs288 million, showing that the cost base did not adjust proportionately. After distribution and administrative expenses, core operating profit before other income was approximately Rs295 million, down about 40% from roughly Rs495 million in Q3 FY25.

Finance cost then amplified the operating weakness. Q3 finance cost rose 13.4% to Rs389.4 million; over nine months it increased 22.3% to Rs1.25 billion. Finance cost paid in cash was Rs1.22 billion versus Rs963.2 million a year earlier. This is important because the balance sheet shows lower short-term borrowing at March 31 than at June 2025, yet the income statement still carried a materially higher accumulated financing burden.

The associate also moved against the company. Faisal Spinning Mills recognized a Rs23.2 million share of loss from Blessed Textiles in Q3 versus a Rs4.85 million share of profit a year earlier. For nine months, the associate loss widened to Rs47.1 million from Rs22.6 million. This is not the main reason for the company’s reported loss, but it removed another layer of earnings support below finance cost.

Revenue-linked levies remain another structural burden. The company recognized Rs410.2 million of levies during 9MFY26 and Rs133.4 million in Q3 even though it was loss-making after finance and associate effects. The notes identify these as revenue taxes under sections 113 and 154 of the Income Tax Ordinance. That means a weak accounting-profit year can still carry a significant levy charge.

Why the nine-month margin looks steadier than Q3

For 9MFY26, sales fell 4.7% to Rs34.21 billion and gross profit fell 4.2% to Rs2.54 billion. Gross margin therefore edged up slightly to about 7.42% from 7.37%. Distribution and administrative expenses also declined modestly in absolute terms. At the operating level before finance costs, the business was therefore broadly stable over nine months even though the March quarter itself deteriorated.

That divergence suggests the latest quarter experienced a less favorable pricing, input-cost or product-mix combination than the first half. The company’s directors cite subdued export demand, elevated energy costs, rising taxation and geopolitical disruption as pressures on sector margins. The filing also points to tighter cotton availability and higher logistics costs. It does not provide a Q3 bridge quantifying how much of the gross-margin decline came from cotton, energy, freight, pricing or mix, so assigning a precise cause would be speculation.

Segment performance: weaving and finishing held up better than spinning

The nine-month segment data show a meaningful mix shift. Spinning external revenue increased 7.5% to Rs13.16 billion, but its segment result fell 41.7% to Rs176.5 million. In contrast, weaving revenue declined 14.7% to Rs9.06 billion while segment profit increased 7.3% to Rs524.8 million. Finishing and home-textile revenue fell 8.1% to Rs11.99 billion, yet segment profit rose 14.9% to Rs438.1 million.

Economically, the mix matters more than the top-line change alone. Spinning generated more revenue but much less segment profit, while the downstream weaving and finishing businesses defended or improved profit despite lower sales. That supports the strategic logic of further value-added finishing investment. It also shows why company-wide revenue decline should not be read as a uniform weakening across every production stage.

Cash conversion was strong, but its quality needs context

The Rs4.92 billion operating cash inflow is a major reversal, but it was driven substantially by balance-sheet release rather than earnings. Inventory reduction was the largest positive contributor, followed by higher payables. Against that, trade receivables absorbed Rs1.04 billion and sales-tax refunds absorbed another Rs804.5 million. Trade debts ended March at Rs4.98 billion, 26.5% above June 2025 even as nine-month sales were lower year on year.

The cash was actively redeployed. Investing activities used Rs1.97 billion, including Rs984.0 million of additions to property, plant and equipment, Rs616.0 million in short-term investments and Rs375.0 million in long-term investments. Financing activities used Rs3.04 billion, mainly because short-term borrowings fell by Rs3.47 billion on a cash-flow basis, partly offset by new long-term financing.

Closing cash consequently slipped to Rs261.8 million from Rs349.0 million at June 2025. Strong operating cash flow therefore did not translate into a larger cash pile; it financed debt reduction and investment. That is economically constructive, but it also means future cash generation should be judged on whether inventory can remain controlled without further stretching suppliers or allowing receivables to rise.

Balance sheet: debt fell, but liquidity did not strengthen

Short-term borrowings declined 21.5% from June 2025 to Rs12.70 billion. Long-term financing, however, increased 9.7% to Rs4.93 billion, while the current portion of non-current liabilities remained near Rs794 million. The funding mix therefore shifted somewhat away from short-term debt rather than showing a uniform reduction across all borrowing lines.

Current assets fell to Rs24.67 billion from Rs26.39 billion, while current liabilities fell to Rs21.08 billion from Rs22.14 billion. The current ratio slipped to about 1.17x from 1.19x, and net working capital narrowed to about Rs3.59 billion from Rs4.25 billion. So despite the repayment of short-term borrowing, the near-term liquidity cushion did not expand.

Equity declined to Rs11.61 billion from Rs12.17 billion, almost entirely reflecting the nine-month loss. The company presents Rs1.07 billion of interest-free loans from directors and sponsors within equity because they are repayable at the company’s discretion under the disclosed accounting treatment. This support is useful for the capital structure, but it does not remove the commercial importance of restoring recurring profitability.

Sector and macro context

Pakistan’s export backdrop was weak during the reporting period. Pakistan Bureau of Statistics data show total merchandise exports down 8.0% in US-dollar terms during July–March FY26, while March exports were 14.0% lower year on year. The March commodity mix was mixed: cotton yarn exports were higher year on year, but knitwear, readymade garments, bed wear and cotton cloth were lower. That supports a difficult demand backdrop rather than a broad textile export upswing.

The company’s own review places textile and apparel exports broadly flat over the nine-month period and highlights geopolitical disruption, freight and insurance costs, energy pressure and tight cotton supply. A broad listed composite peer, Gul Ahmed Textile Mills, also reported a Q3 loss on the PSX financial page after a strong prior-year quarterly profit, indicating that earnings pressure was not unique to Faisal Spinning Mills. Peer evidence does not prove identical cost drivers, but it is consistent with a difficult sector-wide operating environment.

Interest rates are now a forward risk again. During the quarter, the policy rate was 10.5%, but after the reporting date the State Bank of Pakistan raised it by 100 basis points to 11.5% effective April 28, 2026. Faisal Spinning Mills already carried Rs1.25 billion of finance cost over nine months, so the next reporting cycle will test whether lower short-term borrowing can offset a less favorable benchmark-rate environment.

Recurring versus non-recurring earnings

The recurring earnings engine is the spread between textile selling prices and cotton, energy, labor and conversion costs across spinning, weaving and finishing, adjusted for capacity utilization, export mix and financing. The Q3 gross-margin decline and the nine-month finance burden belong squarely to that recurring economics. The same is true of distribution and administrative costs and the revenue-linked levies.

There were some non-core items, but none was large enough to explain the loss. Other income was Rs108.9 million over nine months, down from Rs118.9 million. The company recognized a Rs17.9 million fair-value gain on mutual funds and a small gain on disposal of property, plant and equipment. These benefits were modest relative to the Rs1.25 billion finance cost. The Rs47.1 million associate loss is economically separate from the company’s textile operating segments, although it remains part of reported earnings.

What changed versus the recent historical pattern

PSX’s annual financial history shows that Faisal Spinning Mills moved from strong profitability in FY2022 and FY2023 into losses in FY2024 and FY2025. FY2025 sales still reached about Rs46.20 billion and gross margin recovered to roughly 8.0% from 6.1% in FY2024, but the company remained loss-making after finance and tax. The current nine-month result continues that pattern: operating gross margin has stabilized around the high-single-digit range, but financing and statutory charges still prevent that operating spread from translating into net profit.

Within FY26, the March quarter is a setback because its gross margin of 6.84% fell below the nine-month average and the prior-year quarter. The operating business therefore needs more than stable sales: it needs a better spread, lower financing intensity and stronger downstream mix to convert revenue into sustainable earnings.

What to monitor next

  • Gross margin: whether Q3’s 6.84% level rebounds toward or above the nine-month average as cotton, energy, freight and selling-price conditions evolve.
  • Spinning economics: spinning revenue grew over nine months while segment profit fell sharply; a recovery in this segment would materially improve group operating leverage.
  • Finance cost: period-end short-term borrowing is lower, but the policy rate increased after quarter-end. Watch whether debt reduction is sufficient to bring the finance line down.
  • Working-capital quality: inventory fell strongly, but receivables and supplier balances increased. Sustainable cash conversion should rely less on further payable expansion.
  • Finishing Unit III: the contribution from Stenter, Digital Printing and the April-started Washing Process should become more visible in downstream mix and segment profitability.
  • Renewable generation: the expanded solar and wind portfolio may help reduce exposure to grid-energy costs, but the next accounts need to demonstrate the financial benefit.
  • Associate performance and levies: both were meaningful drags below operating profit and should be separated from the core textile result when judging earnings quality.

Overall, Faisal Spinning Mills is generating cash and reducing short-term borrowing, but the earnings engine remains under pressure. Q3 FY26 showed weaker sales, a narrower gross spread and higher financing cost, while downstream segments performed better than spinning over nine months. The next result will be more convincing if working-capital discipline is accompanied by a recovery in gross margin and a clear decline in finance cost rather than cash improvement alone.

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