Company Name: Feroze1888 Mills Limited
Ticker: FML
Verdict
Feroze1888 ended FY2026 with a much stronger reported bottom line, but the rebound was not primarily driven by stronger manufacturing economics. Consolidated sales rose only 2.5%, cost of sales grew faster than revenue, and gross profit fell 7.3%, pushing gross margin down to 12.42% from 13.72%. The crucial offset was below that line: other income surged to Rs2.291 billion, finance costs fell 20.1%, and the company recognised a Rs265.9 million benefit from discounting the Sindh Infrastructure Development Cess (SIDC). Profit after tax consequently rose to Rs803.4 million from Rs99.0 million. The result is therefore a genuine earnings recovery, but one whose recurring quality is weaker than the headline PAT growth suggests. Official FY2026 result.
AlphaGen model readings
Alpha QoQ Score: 96.61
TTM Performance Score: 96.15
3Y Business Perf Score: 21.89
Sector Leadership Score: 56.08
These four readings are AlphaGen model outputs, not company-reported financial figures. They are presented separately from the public accounts and do not constitute investment advice.
Results at a glance
- Consolidated sales were Rs67.735 billion versus Rs66.111 billion, up 2.5%. Cost of sales rose 4.0%, so gross profit declined 7.3% to Rs8.411 billion and gross margin fell about 130 basis points to 12.42%. Official FY2026 result.
- Profit before other income fell 46.1% to Rs1.519 billion, but other income jumped 159% to Rs2.291 billion. Reported operating profit therefore edged up 3.0% to Rs3.810 billion. Official FY2026 result.
- Finance costs fell 20.1% to Rs2.450 billion. A Rs265.9 million SIDC discounting benefit also lifted profit before levies and tax to Rs1.625 billion from Rs631.5 million. Official FY2026 result.
- Consolidated PAT was Rs803.4 million versus Rs99.0 million; EPS increased to Rs2.01 from Rs0.25. The Board recommended no cash dividend, bonus shares, right issue or other entitlement. Official Board filing.
- Net operating cash flow improved to positive Rs353.1 million from negative Rs1.075 billion, but capital expenditure of Rs1.465 billion still exceeded operating cash generation. Consolidated cash-flow statement.
The manufacturing picture weakened despite stable sales
The top line was relatively resilient: sales grew 2.5% even though Pakistan’s overall merchandise exports fell 5.9% in US-dollar terms during July–June FY2026. But Feroze1888 did not convert that revenue stability into stronger gross earnings. Cost of sales rose 4.0% while revenue grew 2.5%, reducing gross profit by Rs658.7 million and compressing gross margin from 13.72% to 12.42%. Economically, that means the company absorbed more production and input cost per rupee of sales than a year earlier. The public year-end filing does not break the change into selling prices, cotton/yarn costs, energy, freight, utilization or customer mix, so assigning the margin decline to any one factor would be speculation. Company result. PBS FY2026 trade release.
Operating expenses added another layer of pressure. Distribution costs rose 15.9% to Rs5.543 billion while administrative costs were broadly flat and other expenses declined. Before other income, the resulting profit subtotal fell to Rs1.519 billion from Rs2.816 billion—a 46% contraction—and the corresponding margin fell to about 2.24% from 4.26%. This is the cleanest signal of the recurring operating squeeze in the published income statement because it excludes the unusually large other-income contribution that follows. Official FY2026 result.
Other income did most of the earnings repair
Other income increased to Rs2.291 billion from Rs883.9 million. The consolidated cash-flow reconciliation helps explain its character: it reverses Rs1.364 billion of exchange gain and Rs687.5 million of gain on derivative financial instruments when reconciling accounting profit to cash generated from operations. That indicates a large part of FY2026’s other-income uplift came from foreign-exchange and derivative effects rather than from the textile manufacturing margin itself. These items are economically relevant for an exporter, but they can be volatile and should not be treated as a fixed recurring earnings stream. Consolidated profit-and-loss and cash-flow statements.
This distinction changes how the full-year recovery should be read. Reported operating profit rose about 3%, but profit before other income fell 46%. The improvement below operating profit was then reinforced by lower finance costs and the SIDC discounting adjustment. In other words, FY2026 restored profitability after FY2025’s very weak bottom line, but the year did not yet restore the underlying gross and expense economics to a stronger level. Official FY2026 result.
Q4: gross margin improved, but other income still mattered
The June quarter is not separately presented in the year-end announcement, so it must be derived. To keep the basis consistent, the following Q4 figures subtract the official unaudited, unconsolidated nine-month March statements from the official unconsolidated FY2026 results. Derived Q4 sales were about Rs18.052 billion, down 3.9% from roughly Rs18.781 billion in Q4 FY2025. Gross profit, however, rose 10.6% to Rs2.793 billion, lifting derived gross margin to 15.47% from 13.44%. That is a meaningful late-year improvement in manufacturing margin even as quarterly revenue declined. FY2026 filing. March 2026 interim result.
The quality of the Q4 operating-profit increase is more mixed. After administrative, distribution and other expenses—but before other income—the derived quarterly subtotal was about Rs579.7 million, 11.1% below the prior-year quarter. Other income then rose to roughly Rs675.8 million from Rs160.6 million, taking derived operating profit to about Rs1.256 billion, up 54.5%. Thus Q4 did show a better gross margin, but the reported operating-profit acceleration still depended heavily on other income. Derived from official FY and nine-month statements.
Derived Q4 finance cost fell about 11.5% to Rs617.7 million. The full-year Rs265.9 million effect of discounting SIDC is absent from the nine-month income statement, so it appears to have been recognised in the June quarter. Together with lower levies in the derived quarter, these factors helped lift derived Q4 PAT to about Rs705.7 million from Rs85.3 million. The PAT jump is therefore much larger than the underlying revenue and gross-profit changes and should be decomposed before judging the quarter’s repeatability. Official FY and March filings.
Finance costs eased, but funding remains a major earnings variable
Finance costs declined to Rs2.450 billion from Rs3.068 billion despite short-term borrowings ending the year 14.9% higher at Rs27.915 billion. The public accounts do not disclose an average borrowing balance or a single effective funding rate, so the precise cause cannot be isolated from the result announcement. However, the direction is consistent with Pakistan’s lower interest-rate environment through much of FY2026 compared with the start of FY2025: the SBP policy rate was 19.5% from late July 2024, while it was 10.5% in early 2026 before being raised to 11.5% from 28 April 2026. Borrowing mix and timing also matter, so this should be treated as contextual inference rather than management attribution. SBP July 2024 circular. SBP April 2026 circular.
The balance-sheet mix remains important. Long-term financing fell 19.9% to Rs3.936 billion and the current portion of long-term financing fell 41.3% to Rs1.061 billion, but short-term borrowings increased to Rs27.915 billion. That leaves the company heavily reliant on short-tenor working-capital funding. If benchmark rates remain elevated or working capital expands, finance cost can again become a larger drag; if rates and borrowing requirements ease, the opposite applies. Consolidated statement of financial position.
Cash conversion improved, but investment still exceeded operating cash flow
The cash-flow statement improved materially. Cash generated from operations before financing and tax payments rose 29.0% to Rs5.001 billion. Working-capital absorption narrowed to Rs457.2 million from Rs2.700 billion: stock-in-trade still consumed Rs2.615 billion of cash and advances/other receivables consumed Rs3.106 billion, but a Rs3.624 billion release from trade debts and higher payables/provisions offset much of that pressure. After finance costs, levies, taxes, gratuity and SIDC payments, net operating cash flow was positive Rs353.1 million versus negative Rs1.075 billion a year earlier. Consolidated cash-flow statement.
That is progress, but cash generation was not yet self-funding after investment. Capital expenditure was Rs1.465 billion, down sharply from Rs3.884 billion, leaving operating cash flow less capex at roughly negative Rs1.11 billion. Financing cash flow remained positive because net short-term borrowing inflow of Rs3.712 billion more than offset net repayment of long-term financing and lease obligations. The company finished with Rs718.6 million of cash and bank balances, up from Rs308.3 million, but the cash increase should be viewed alongside the higher short-term debt. Consolidated cash-flow statement.
Working-capital composition also shifted. Stock in trade rose 12.3% to Rs23.883 billion, while trade debts fell 16.6% to Rs11.929 billion. Advances, deposits, prepayments and other receivables increased materially to Rs10.037 billion from Rs6.257 billion. Current assets of Rs51.524 billion only modestly exceeded current liabilities of Rs46.802 billion, implying a current ratio of about 1.10 times versus roughly 1.05 times a year earlier. Liquidity improved, but the cushion remains narrow for a business carrying large inventories and short-term borrowings. Consolidated statement of financial position.
Sector context: a difficult export finish, followed by a better July
The macro backdrop helps explain why stable full-year sales should not be dismissed. PBS reported Pakistan’s total goods exports down 5.9% in US-dollar terms for July–June FY2026. June itself was particularly weak: bedwear export value was down 24.6% year on year and towels were down 25.2%. On the production side, PBS’s June LSM release showed cotton yarn output up only 1.0% for the year, cotton cloth up 0.17%, and garments up 5.49%, while the textile sector made a negative contribution to overall LSM growth. Against that environment, Feroze1888’s 2.5% rupee sales growth suggests relative top-line resilience, though the company filing does not disclose enough volume and pricing detail to identify the source of that resilience. PBS June trade release. PBS June LSM release.
The first post-year-end data point was more constructive. PBS reported July 2026 merchandise exports up 10.4% year on year in US dollars; bedwear export value rose 1.9% and towels rose 10.9% in rupee terms versus July 2025. One month is not a trend, but it gives a useful early read-through for an export-oriented home-textile producer entering FY2027. PBS July 2026 trade release.
What improved
The strongest positives were the Q4 gross-margin recovery, lower finance cost, better trade-debt collection, improved operating cash flow and lower long-term financing. Q4 gross margin rose by roughly two percentage points despite lower sales, indicating that the late-year manufacturing economics were better than the prior-year quarter. The cash-flow improvement also reduced the severity of the funding gap even though capex remained above operating cash generation.
What weakened / needs attention
Full-year gross margin still weakened, distribution expense grew faster than sales, inventory increased, advances and other receivables expanded sharply, and short-term borrowings rose. The most important quality-of-earnings issue is that other income—not the pre-other-income operating subtotal—drove the reported operating-profit improvement. That makes exchange and derivative gains, financing conditions and SIDC accounting unusually important to the FY2026 bottom line.
Recurring versus exceptional drivers
The more repeatable drivers are sales volumes and pricing, gross margin, distribution and administrative efficiency, working-capital discipline, debt levels and the cost of funding. Q4’s better gross margin is therefore more valuable analytically than the size of the PAT jump. Exchange gains and derivative gains can recur in an export business, but their direction and magnitude are market-dependent rather than a stable manufacturing return. The Rs265.9 million effect of discounting SIDC is even more clearly presentation-specific and should not be annualised as normal earnings.
Dividend and corporate actions
The Board recommended no cash dividend, bonus shares, right shares or other entitlement for FY2026. The announcement also set the AGM for 27 October 2026 and stated that the annual report will be transmitted at least 21 days before the meeting. This matters because the forthcoming annual report should provide the full notes needed to decompose other income, SIDC, geographic sales, customer concentration, derivative exposures and other operating drivers more precisely than the current results announcement allows. Official Board announcement.
What to monitor next
- Gross margin and Q4 follow-through: whether the derived 15.47% Q4 gross margin persists after the full-year margin fell to 12.42%.
- Other income composition: the annual report should clarify how much of exchange and derivative gains is realised, unrealised, recurring or linked to hedging of operating exposures.
- Working capital: inventory, advances and trade debts should be tracked together with operating cash flow, not in isolation.
- Short-term borrowing and finance cost: year-end short-term debt rose even as finance cost fell, so the next cycle will test whether the funding-cost benefit can survive the borrowing requirement.
- Export demand: July’s recovery in bedwear and towels is encouraging, but subsequent monthly data will show whether it is durable after a weak June.
- SIDC: future cash payments and any further accounting remeasurement should be separated from the recurring textile earnings base.
Bottom line
FY2026 restored Feroze1888 to a visibly stronger reported profit position, and Q4 showed an encouraging gross-margin rebound. Yet the full-year accounts also show why headline PAT is not enough: manufacturing gross margin fell, the pre-other-income profit pool contracted sharply, and a large combination of exchange/derivative-related other income, lower finance costs and SIDC discounting rebuilt the bottom line. The next result cycle should therefore be judged first on gross margin, core expenses and cash conversion, and only then on reported PAT. A sustained recovery would show Q4-level margin economics surviving without the same dependence on volatile other income.
Sources
- Feroze1888 Mills — Financial Results for the year ended 30 June 2026
- Feroze1888 Mills — Financial Results for the nine months ended 31 March 2026
- Feroze1888 Mills — official announcements page
- Pakistan Bureau of Statistics — June 2026 external trade release
- Pakistan Bureau of Statistics — June 2026 LSM/QIM release
- State Bank of Pakistan — policy-rate circular, July 2024
- State Bank of Pakistan — policy-rate circular, April 2026
- Pakistan Bureau of Statistics — July 2026 external trade release