AlphaGen
Access AlphaGen
Company Narratives

International Knitwear Q3 FY26: Export Slump Overshadows Better Margins and Cash Conversion

International Knitwear’s Q3 FY26 sales fell sharply as exports contracted, even as gross margins, working capital and operating cash flow improved.

Sep 22, 2026INKLShare price, results & dividends

Verdict

International Knitwear Limited’s Q3 FY26 result is a split story: operating margins held up, cash conversion improved materially, and period-end bank borrowing fell, but the export business contracted hard enough to overwhelm those gains. For the quarter ended March 31, 2026, net sales fell 42.7% year on year to Rs185.3 million and profit after tax collapsed 95.5% to Rs0.60 million. For 9MFY26, sales declined 22.6% to Rs693.3 million and profit after tax fell 45.7% to Rs13.1 million.

The important nuance is that the decline was not broad-based. Nine-month local net sales increased 6.8% to Rs548.3 million, while export net sales fell 62.1% to Rs145.0 million. Gross margin nevertheless improved to 11.5% from 8.5%, and operating profit was almost flat at Rs47.0 million. The damage below operating profit came from a higher nine-month finance bill and weaker investment-related income. At the same time, operating cash flow swung to a positive Rs125.0 million from a Rs113.8 million outflow, allowing short-term financing to decline by about Rs93.4 million from June 2025.

Company and reporting basis

Company Name: International Knitwear Limited

Ticker: INKL

Reporting period: third quarter and nine months ended March 31, 2026.

Basis: company-level (not presented as consolidated group accounts), unaudited condensed interim financial statements prepared under IAS 34. The accumulated nine-month figures were reviewed by the company’s auditors, while the quarter-only figures and related quarterly notes were not reviewed. The March 31, 2026 statement of financial position is compared with the audited June 30, 2025 balance sheet.

AlphaGen model outputs

Alpha QoQ Score: 11.4

TTM Performance Score: 54.85

3Y Business Perf Score: 44.01

Sector Leadership Score: 49.9339

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

Results at a glance

  • Q3 net sales fell 42.7% to Rs185.3 million from Rs323.4 million.
  • Q3 gross profit fell 41.6% to Rs22.3 million, but gross margin edged up to 12.0% from 11.8%.
  • Q3 operating profit fell 60.7% to Rs11.3 million, and operating margin compressed to 6.1% from 8.9%.
  • Q3 finance cost declined 8.4% to Rs9.7 million, but the much smaller operating profit left little earnings cushion; profit after tax fell 95.5% to Rs0.60 million.
  • For 9MFY26, sales fell 22.6% to Rs693.3 million, gross profit rose 4.0% to Rs79.6 million and gross margin widened to 11.5% from 8.5%.
  • Nine-month operating profit was almost flat at Rs47.0 million, but finance cost increased 33.7% to Rs30.7 million and total other income plus unrealized investment gains fell to Rs7.84 million from Rs13.42 million.
  • 9MFY26 profit after tax declined 45.7% to Rs13.1 million; EPS was Rs1.35 versus Rs2.49.
  • Net cash generated from operating activities improved to Rs125.0 million from a Rs113.8 million outflow, while short-term finance fell to Rs309.5 million from Rs402.9 million at June 2025.

What improved

The clearest improvement was gross-margin resilience. Nine-month sales fell by more than one-fifth, yet gross profit increased 4.0%. Cost of goods sold fell 25.1% to Rs613.7 million, faster than the fall in revenue, lifting gross margin by roughly 2.9 percentage points to 11.5%. Management attributes this to better cost of goods sold relative to sales despite a difficult demand environment. This is economically important: the company generated almost the same operating profit on a substantially smaller revenue base.

The local business was also more resilient than the headline number suggests. Nine-month local net sales rose 6.8% to Rs548.3 million from Rs513.2 million. Local gross profit increased to Rs68.2 million from Rs46.9 million and local operating profit rose to Rs42.4 million from Rs30.5 million. That means the domestic business did more than simply offset part of the export weakness; its profit contribution improved. The filing does not disclose volume, price or product-mix data, so the improvement cannot be cleanly split between units sold, pricing and mix.

Cash conversion was the other major positive. Trade debts released Rs143.5 million of cash during the nine months and inventory released another Rs50.1 million. Even after creditors and other liabilities fell by Rs69.1 million, the company generated Rs125.0 million of operating cash after finance costs and taxes. A year earlier, operating activities consumed Rs113.8 million. The reversal matters because it reduced dependence on short-term bank financing even though accounting earnings weakened.

The balance sheet shows the same direction. Trade receivables fell 33.8% from June 2025 to Rs280.8 million, inventory fell 28.7% to Rs124.8 million and short-term finance declined 23.2% to Rs309.5 million. Cash and bank balances increased to Rs14.7 million from Rs2.6 million. Current assets still exceeded current liabilities, with a current ratio of roughly 1.15 times compared with about 1.11 times at June 2025. Liquidity is not abundant, but the direction of working capital was healthier.

What weakened / needs attention

The central weakness is the export franchise. Nine-month export net sales fell 62.1% to Rs145.0 million from Rs382.6 million. In Q3 alone, gross export sales were just Rs6.2 million before rebates and deductions, versus Rs35.8 million a year earlier. At March 31, the balance sheet also showed no foreign trade receivables, compared with Rs155.2 million at June 2025. Taken together, those disclosures point to a very sharp contraction in export activity rather than a temporary accounting effect.

Management attributes the overall sales decline to global price competitiveness, tariffs and difficult macroeconomic conditions affecting consumer demand. That explanation is management’s assessment rather than an independently measurable causal bridge. Sector data adds useful perspective: Pakistan’s total apparel exports in value terms were roughly 1.1% higher during July–March FY2026, with knitted apparel down about 1.1% and woven apparel up about 3.8%. In March alone, PBS reported knitwear export value down 14.5% year on year and readymade garments down 6.5%. INKL’s 62.1% nine-month export decline was therefore far worse than the broad national apparel trend. The inference is that company-specific customer, order, product or competitive factors were also material, even though the filing does not provide enough detail to identify which one dominated.

Q3 also shows how little room remained below operating profit. Operating profit fell to Rs11.3 million and other income plus unrealized investment gains contributed only about Rs0.24 million. After Rs9.7 million of finance cost and Rs0.12 million of other charges, profit before final and income taxes was only Rs1.65 million. Final taxes and income tax then reduced profit after tax to Rs0.60 million. The quarter was therefore barely profitable despite a gross margin that was slightly better year on year.

The nine-month finance bill requires attention as well. Finance cost rose 33.7% to Rs30.7 million even though benchmark monetary conditions were easier than a year earlier: SBP’s policy rate was 10.5% in March 2026 compared with 12.0% in March 2025. Benchmark rates are not the same as INKL’s effective borrowing rate, but the direction supports management’s explanation that facility utilization, rather than simply a higher interest-rate environment, drove the increase. Management says extended credit terms offered to customers and shorter supplier credit increased use of bank facilities. The cash-flow statement shows Rs861.4 million of short-term finance drawdowns and Rs948.8 million of repayments during the nine months, confirming heavy financing turnover even though the closing balance ended lower.

Local growth versus export collapse

The segment split is the most important analytical feature of this result. Exports produced Rs11.5 million of gross profit and Rs4.7 million of operating profit in 9MFY26, down from Rs29.6 million and Rs17.3 million respectively. Local operations produced Rs68.2 million of gross profit and Rs42.4 million of operating profit, up from Rs46.9 million and Rs30.5 million. The company has effectively become much more dependent on domestic sales during FY26.

That shift has two implications. First, it reduces the near-term earnings sensitivity to export customers if local demand continues to hold. Second, it removes some of the diversification that an export channel can provide. The company describes itself as a manufacturer of knitted and woven apparel for both domestic and international markets and operates an integrated setup covering knitting, dyeing, stitching, testing and finishing. If export utilization remains depressed, fixed manufacturing infrastructure has to be absorbed by a smaller export base or redirected toward local demand. The filing does not disclose capacity utilization, so the amount of idle capacity cannot be quantified.

Margins improved, but earnings quality did not improve equally

The gross-margin gain is real, but it should not be confused with a full earnings recovery. Nine-month operating profit was almost unchanged because administrative and selling expenses increased 13.5% to Rs32.6 million. Below operating profit, dividend income fell to Rs5.0 million from Rs6.1 million and unrealized gains on investments fell to Rs2.9 million from Rs5.9 million. The company also holds listed equities and mutual funds, so part of non-operating earnings naturally moves with dividends and market values rather than garment manufacturing.

Those investment-related contributions are less dependable than operating profit. They were not large enough to dominate the result, but their decline mattered because operating earnings were already under pressure. A cleaner earnings recovery would therefore require stronger core sales and operating profit rather than relying on a rebound in market-linked gains.

Recurring versus less recurring drivers

  • More recurring if execution holds: improved gross-margin discipline, local sales growth, working-capital control and lower period-end short-term borrowing.
  • Recurring risk: export order weakness, competitive pricing pressure, customer-credit requirements and the financing cost needed to bridge receivables and supplier payments.
  • Less predictable: dividend income and unrealized gains on listed investments. These can recur, but amounts depend on investee payouts and market valuations rather than apparel operations.
  • Not a current earnings driver: asset-disposal gains were immaterial in 9MFY26, so the reported profit decline was not distorted by a large disposal one-off.

Cash flow and balance-sheet repair matter more than the headline profit

The strongest counterweight to the weak income statement is the cash-flow statement. Operating cash generation funded Rs16.3 million of net investing outflow and helped support Rs96.7 million of financing outflow, including the net repayment of short-term facilities and a Rs9.34 million dividend payment. Closing cash improved by Rs12.0 million to Rs14.7 million.

This does not mean financial risk has disappeared. Short-term finance of Rs309.5 million remains large relative to equity of Rs200.2 million, and trade receivables of Rs280.8 million remain the largest current asset. The encouraging part is that receivables, inventory, payables and bank borrowing all moved down together. That is more consistent with genuine balance-sheet contraction and cash release than with a temporary increase in borrowing to manufacture a higher cash balance.

What changed versus the recent pattern

The current period breaks sharply from FY2025’s top-line trajectory. PSX’s annual financial summary shows FY2025 sales of Rs1.211 billion versus Rs850.5 million in FY2024, a 42.3% increase, while profit after tax rose to Rs30.9 million from Rs11.0 million. FY26 has so far reversed the sales momentum: 9MFY26 revenue is down 22.6% and Q3 revenue is down 42.7%.

Yet the margin pattern is better than the headline contraction suggests. The company’s 9MFY26 gross margin of 11.5% is well above the 8.5% comparable nine-month margin. The challenge is now less about basic gross profitability and more about restoring export volume, protecting local growth, keeping overhead proportional to sales and converting lower working-capital needs into a sustained reduction in financing costs.

What to monitor next

  • Export sales: whether the severe decline stabilizes and whether management provides more detail on customer orders, tariffs, pricing or lost volumes.
  • Local sales and profitability: domestic growth is now carrying most of operating profit, so sustaining local demand is critical.
  • Gross margin: whether the roughly 11.5% nine-month margin can hold as the sales mix changes.
  • Finance cost: closing debt is lower, so the next result should show whether the large nine-month finance burden begins to normalize.
  • Receivables and customer credit: working-capital cash improved sharply, but management still identifies extended customer terms as a financing pressure.
  • Inventory: finished goods dropped sharply by March; replenishment and work-in-process levels will show whether this reflects tighter planning or simply weaker activity.
  • Export-sector divergence: national apparel exports held up far better than INKL’s exports, so evidence of company-specific recovery matters more than a broad sector rebound.
  • Investment income: dividend and market-value gains should be treated as secondary to operating performance.

Sources

Explore more research

All articles