First Treet Manufacturing Modaraba (PSX: FTMM) delivered a respectable but uneven FY2026. Revenue rose 9.7% and gross profit grew 13.7%, led by a clear improvement in corrugated packaging. Yet operating profit slipped 2.1% because the soap segment’s operating profitability weakened and group operating expenses rose faster than gross profit. Profit after tax increased only 2.1% to Rs119.9 million. The result is therefore positive at the manufacturing level, but not a broad-based earnings acceleration.
The analysis uses FTMM’s audited standalone financial statements for the year ended June 30, 2026, presented in Pakistani rupees. The independent auditor issued an unmodified opinion, stating that the financial statements give a true and fair view under the accounting and reporting standards applicable in Pakistan. The figures are directly comparable with FY2025 except for earnings per certificate, which was affected by the earlier reduction in certificate capital under the battery-business demerger.
Results at a glance
- Net revenue: Rs4.163 billion, up 9.7% from Rs3.793 billion.
- Gross profit: Rs390.9 million, up 13.7%; gross margin improved to 9.39% from 9.07%.
- Operating profit: Rs155.9 million, down 2.1%; operating margin narrowed to 3.75% from 4.20%.
- Profit before levies and income tax: Rs180.8 million, down 2.6% from Rs185.7 million.
- Profit after tax: Rs119.9 million, up 2.1% from Rs117.5 million.
- Basic and diluted earnings per certificate: Rs0.613 versus Rs0.135, but the comparison is distorted by the reduction in certificate capital.
- Operating cash flow: Rs177.4 million, down 33.7% from Rs267.5 million.
- Interim cash distribution: Rs1.50 per certificate; no final distribution was recommended.
Packaging was the operating bright spot
Corrugated packaging generated net revenue of Rs3.031 billion, 10.8% above the prior year. Gross profit increased 21.7% to Rs139.4 million, lifting the segment’s gross margin to 4.6% from 4.2%. Operating profit rose 76.1% to Rs52.9 million, and operating margin improved to 1.7% from 1.1%. Although the absolute margin remains thin, the direction was decisively positive.
Management attributes the improvement to new customers, new stock-keeping units for existing customers, higher sales volume, material-cost optimization and rationalized factory overheads. Production data support the volume component: corrugated-box output rose 12.4% to 19,905 metric tons from 17,716 tons. Against rated capacity of 30,000 tons, utilization increased to roughly 66.4% from 59.1%. This is a reproducible operating bridge rather than a generic claim—higher production and sales combined with better material and overhead control to lift profit faster than revenue.
The opportunity is further utilization improvement. The plant still operated at about two-thirds of rated capacity, leaving room for growth without a proportionate expansion in installed capacity. Management plans to deepen strategic-account relationships, add larger customers and increase business from existing accounts. The risk is competition: FTMM notes that rivals have invested in machinery and balancing, modernization and replacement programs. Packaging margins are improving, but they remain too narrow to absorb a major pricing or raw-material shock comfortably.
Soap revenue grew, but profit quality weakened
The soap segment’s net revenue increased 7.1% to Rs1.132 billion and gross profit rose 9.6% to Rs251.4 million. Gross margin improved modestly to 22.2% from 21.7%. Despite that progress, segment operating profit fell 20.2% to Rs103.0 million and operating margin contracted sharply to 9.1% from 12.2%. Soap remained the larger contributor to segment operating profit, but it was the principal reason group operating profit declined.
The detailed segment accounts show the pressure below gross profit. Soap administration and selling expenses together rose to Rs148.4 million from Rs100.2 million, an increase of about 48%. Management also cites higher input costs, inflationary pressure and weaker sales of higher-end products. Soap production declined 11.7% to 1,876 metric tons from 2,124 tons even though sales value increased, indicating that price and mix helped revenue while unit economics and operating costs constrained profit. FTMM uses toll manufacturing for soap, so the report does not disclose installed soap capacity.
Inventory also deserves attention. Total stock in trade increased 50.9% to Rs552.4 million. Raw and packing material for soap rose materially, while finished soap remained high at Rs139.9 million. FTMM recorded a Rs2.0 million write-down of soap inventory to net realizable value, compared with no such charge in FY2025. The amount is small relative to sales, but it is a concrete signal that some inventory could not support its recorded cost.
Why net profit still edged higher
At group level, gross profit increased by Rs47.0 million, but administration and selling expenses rose by Rs50.2 million. That left operating profit slightly lower at Rs155.9 million. Below operating profit, two large movements largely offset each other. Other expenses fell to Rs15.0 million from Rs51.9 million, helped by a lower expected-credit-loss charge, while other income declined to Rs45.9 million from Rs84.1 million. Finance cost remained modest at Rs6.0 million, compared with Rs5.7 million.
The expected-credit-loss charge fell to Rs14.3 million from Rs50.9 million, supporting the reduction in other expenses. Profit before levies and income tax nevertheless declined 2.6% to Rs180.8 million. Levies increased to Rs52.4 million from Rs47.7 million, while income tax fell to Rs8.5 million from Rs20.6 million. The lower conventional income-tax charge was enough for profit after tax to increase slightly to Rs119.9 million.
The jump in earnings per certificate—from Rs0.135 to Rs0.613—should not be read as a 353% increase in economic profit. The audited accounts explicitly say the calculation was adjusted for the reduction in certificate capital under the battery-business demerger. Profit after tax, which rose only 2.1%, is the cleaner measure of year-on-year earnings progress.
Balance sheet: debt-free, liquid, but cash and equity fell
FTMM ended June with total assets of Rs3.321 billion, down 10.1% from Rs3.694 billion. Current assets were Rs2.943 billion against current liabilities of Rs500.5 million, implying a strong current ratio of about 5.88 times. The balance sheet reported no interest-bearing debt, while trade and other payables fell to Rs433.3 million from Rs638.7 million. These features substantially reduce refinancing risk.
Liquidity quality is more nuanced. Cash and bank balances fell 54.9% to Rs211.7 million. Trade debts declined 10.7% to Rs716.3 million, and advances and other receivables dropped to Rs374.7 million from Rs677.4 million. However, stock in trade climbed to Rs552.4 million. Tax refunds due from government remained exceptionally large at Rs1.001 billion—about one-third of current assets—so a meaningful part of reported liquidity is not cash available for operations.
Equity declined 5.8% to Rs2.817 billion despite the year’s profit. The main reason was the Rs293.4 million interim distribution, equivalent to Rs1.50 per certificate. That cash distribution was roughly 2.45 times FY2026 profit after tax and reduced accumulated profit to Rs248.4 million from Rs445.9 million. The payout was supported by existing reserves, but its scale is not repeatable indefinitely unless earnings and cash conversion strengthen.
Cash flow absorbed the dividend and investment program
Net cash generated from operations was Rs177.4 million, down from Rs267.5 million. Before working-capital changes, operating cash flow was Rs228.2 million. Working capital then produced mixed effects: lower advances and other receivables released Rs302.6 million, and lower trade debts released Rs71.9 million, but inventory absorbed Rs188.3 million and lower trade payables absorbed Rs198.5 million.
Investment spending accelerated. Capital work in progress consumed Rs145.5 million, compared with Rs17.3 million in FY2025, while profit received on bank deposits was Rs10.7 million. After the Rs293.4 million distribution, cash and cash equivalents fell by Rs250.8 million to Rs199.6 million. This does not signal financial distress—the company remains debt-free and liquid—but it shows that the combined dividend and capital program exceeded internally generated cash during the year.
What improved
- Revenue and gross profit grew, with gross margin expanding by about 32 basis points.
- Corrugated packaging operating profit rose 76.1%, supported by higher production, new customers and efficiency measures.
- Packaging capacity utilization increased by about 7.3 percentage points.
- The expected-credit-loss charge fell substantially.
- Trade debts, advances and trade payables declined, and the balance sheet remained free of interest-bearing debt.
What weakened / needs attention
- Group operating margin contracted because operating expenses rose faster than gross profit.
- Soap operating profit fell 20.2% and its operating margin dropped to 9.1%.
- Inventory increased 50.9%, including a small write-down of soap stock.
- Operating cash flow declined, capital spending increased sharply and cash balances more than halved.
- The Rs293.4 million interim distribution exceeded annual profit by a wide margin.
- Tax refunds due from government remain a large, non-cash component of current assets.
AlphaGen model scores
These are AlphaGen model outputs, not figures reported by FTMM:
- Alpha QoQ Score: 72.33
- TTM Performance Score: 36.66
- 3Y Business Perf Score: 64.73
- Sector Leadership Score: 60.55
The score mix reflects the result’s tension. Near-term operating momentum and the three-year business trend are constructive, while the TTM score is weaker. That is consistent with modest net-profit growth, a lower operating margin and heavier cash deployment despite the packaging turnaround.
What to monitor next
- Whether packaging utilization moves above two-thirds without sacrificing price or credit quality.
- Whether soap operating expenses normalize and premium-product sales recover.
- Whether the inventory build converts into sales rather than further write-downs.
- Whether operating cash flow covers both capital spending and distributions in FY2027.
- The recovery timing of more than Rs1.0 billion in tax refunds.
- Whether management maintains a distribution level consistent with recurring profit and cash generation.
Evidence and limitations
The evidence decision is PASS. FTMM’s audited annual report establishes the exact entity, period, reporting basis, segment results, balance sheet and cash flows. Material calculations reconcile to the issuer’s statements. Management provides useful explanations for packaging growth and soap pressure, but it does not disclose customer-level volumes, selling prices or a detailed raw-material price bridge. The article therefore uses disclosed production, segment margins and expense movements without inventing an unsupported price-volume-mix split.
Primary sources
Pakistan Stock Exchange company page for FTMM — https://dps.psx.com.pk/company/FTMM