Verdict: International Knitwear Limited closed FY2026 with a better cost structure but a much smaller revenue base. The audited annual result shows FY2026 sales down 28.7% to Rs863.5 million and profit after tax down 48.0% to Rs16.0 million. The more revealing exit-rate picture is the implied June quarter: revenue fell 45.9% year on year to Rs170.2 million, yet gross margin improved to 11.7% from 9.5%. That margin resilience was not enough to protect operating profit because the sales base shrank so sharply, while finance cost remained heavy. Cash generation improved materially at full-year level, but much of that improvement came from collecting receivables and reducing working capital rather than from stronger earnings. The central question for the next cycle is whether the company can rebuild export volumes without giving back the margin gains or re-levering the balance sheet.
Results at a glance
- Company Name: International Knitwear Limited
- Ticker: INKL
- Reporting period: Year ended June 30, 2026; Q4 FY26 figures below are implied from the audited FY2026 result less the official nine-month filing.
- Reporting basis: Company-level audited annual financial result. The March 2026 interim statements were unaudited; accumulated nine-month figures were subject to limited review, while quarter-only figures were not separately reviewed.
- Alpha QoQ Score: 24.59
- TTM Performance Score: 34.23
- 3Y Business Perf Score: 39.23
- Sector Leadership Score: 50.1745
These four are AlphaGen model outputs, not company-reported figures.
Implied Q4 FY26: the top line contracted sharply
International Knitwear’s annual result does not publish a standalone June-quarter income statement. The Q4 figures therefore need to be derived by subtracting the official nine-month numbers from the audited FY2026 result. On that basis, implied Q4 sales were Rs170.2 million versus Rs314.8 million in Q4 FY2025, a 45.9% year-on-year decline. Gross profit fell 33.0% to Rs19.95 million, operating profit fell 57.1% to Rs8.97 million and profit after tax fell 56.2% to Rs2.96 million.
The margin picture was better than the headline sales decline suggests. Implied Q4 gross margin improved to 11.7% from 9.5%, an increase of roughly 225 basis points. This means cost of goods sold fell faster than revenue. However, operating margin slipped to 5.3% from 6.6% because the smaller gross-profit pool had to absorb operating expenses. Net margin eased to 1.7% from 2.1%.
That combination—higher gross margin but lower operating and net profit—is important. It suggests that the company did achieve some protection at the manufacturing/gross-profit level, but the loss of scale dominated below gross profit. This is consistent with the pattern visible through the first nine months, when management reported lower sales alongside an improvement in gross margin.
Finance cost was the largest pressure below operations. Implied Q4 finance cost rose 37.5% to about Rs8.96 million from Rs6.51 million, almost equal to the quarter’s Rs8.97 million operating profit. That left very little operating cushion before taxes and other items. Profit before levies and final taxes fell 81.4% to about Rs2.54 million.
Tax effects softened the PAT decline. The FY2026 result includes a Rs2.23 million prior-year tax credit and a Rs0.95 million deferred-tax credit for the year. Bridging the annual and nine-month statements implies a net tax benefit of roughly Rs0.51 million in Q4, because current tax was more than offset by prior-year and deferred credits. That is not a recurring operating driver, so pre-tax economics are more useful than PAT alone for judging the quarter.
What improved
The first improvement is gross margin. For the full year, gross margin rose to 11.5% from 8.8%, even though revenue dropped 28.7%. Gross profit declined only 6.4% to Rs99.6 million while sales fell by almost three times that rate. Operating margin also improved on a full-year basis to 6.5% from 5.7%, although operating profit still declined 18.5% to Rs56.0 million.
The second improvement is the year-end balance sheet. Trade debts fell 52.4% to Rs202.1 million from Rs424.3 million. Short-term secured finance fell 39.5% to Rs243.8 million from Rs402.9 million. Current liabilities declined faster than current assets, leaving positive working capital of about Rs74.1 million versus Rs68.2 million a year earlier and improving the current ratio to roughly 1.18x from 1.11x. Equity increased 6.3% to Rs206.7 million.
The third improvement is cash conversion. Full-year operating cash flow swung to a positive Rs182.7 million from a Rs205.4 million outflow in FY2025. That is a major liquidity improvement, and it supported the reduction in short-term finance.
What weakened / needs attention
The most serious weakness is revenue. FY2026 sales fell 28.7% to Rs863.5 million from Rs1.21 billion, while the implied Q4 decline accelerated to 45.9% year on year. The company entered the year’s final quarter with a clear export problem: in the first nine months, export sales fell 62.1% to Rs145.0 million, while local sales increased 6.8% to Rs548.3 million. Management attributed the overall sales decline to global price competitiveness, tariffs and difficult macroeconomic conditions affecting consumer demand. Because the year-end result does not disclose a Q4 geographic split, it would be wrong to claim that the June-quarter decline was entirely export-driven. Still, the nine-month mix makes export weakness the most important demonstrated explanation for the full-year contraction.
Finance cost is the second weakness. Full-year finance cost increased 34.6% to Rs39.6 million despite lower sales and lower year-end borrowings. Management had already explained at nine months that extended credit to customers and shorter supplier credit periods increased bank-facility utilization. The rate environment also became less supportive late in the year: the State Bank of Pakistan increased the policy rate from 10.5% to 11.5% effective April 28, 2026. That macro move is context rather than proof of company-specific causality, but it meant the June quarter did not enjoy a continuously easing funding backdrop.
A third concern is operating leverage. Administrative and selling expenses increased to Rs43.6 million from Rs37.6 million for the year even as revenue fell materially. Because gross profit was protected through margin improvement, the rise in these expenses contributed to the decline in operating profit.
Full-year earnings: better margins, weaker absolute profit
For FY2026, revenue fell to Rs863.5 million from Rs1.21 billion. Gross profit declined to Rs99.6 million from Rs106.4 million, but the gross-margin expansion meant the fall in gross profit was far smaller than the fall in sales. Operating profit declined 18.5% to Rs56.0 million.
Below operating profit, the pressure intensified. Other income fell to Rs7.63 million from Rs11.40 million, while finance cost rose to Rs39.62 million from Rs29.44 million. Profit before income taxes, levies and final taxes therefore fell 49.2% to Rs25.05 million. Profit after tax fell 48.0% to Rs16.04 million and EPS declined to Rs1.66 from Rs3.19.
The company’s investment portfolio also contributed non-operating income and fair-value movements. FY2026 included Rs2.92 million of unrealized gains on investments through profit or loss, versus Rs2.27 million in FY2025. These are genuine reported earnings but should not be treated as the same quality as profit generated from garment sales.
Cash flow: a real improvement, but driven by working capital
The FY2026 cash-flow statement shows Rs70.6 million of profit before changes in working capital, only modestly below Rs76.6 million in FY2025. The large swing came after working capital. Trade-debt collection released Rs222.2 million of cash in FY2026, compared with a Rs371.1 million absorption in FY2025. Inventory contributed only Rs0.9 million of cash release, while creditors and other liabilities declined by Rs53.1 million, offsetting part of the receivables benefit.
After finance charges and taxes, operating activities generated Rs182.7 million. Investing activities used Rs14.7 million. Financing activities used Rs168.4 million as repayments of short-term finance exceeded new drawdowns and the company paid the prior-year dividend.
This is healthier than FY2025 because receivables and debt both came down substantially. But Rs182.7 million of operating cash flow should not be annualized as a recurring earnings run rate. The dominant contributor was normalization of receivables. Once that pool has been collected, future cash generation will need to rely more on operating profit and disciplined credit terms.
Local versus export: the business became much more domestic through nine months
The March 2026 interim report provides the clearest operating split available before year-end. Nine-month local sales increased to Rs548.3 million from Rs513.2 million, while export sales collapsed to Rs145.0 million from Rs382.6 million. Local gross profit improved to roughly Rs68.2 million and local operating profit to about Rs42.4 million, while the export operation became much smaller.
That mix shift helps explain why gross margin could improve even as total revenue contracted. It is an inference—not a disclosed Q4 explanation—that a greater domestic contribution and cost discipline helped protect margin. The year-end filing does not provide enough segment detail to attribute the June-quarter margin gain precisely.
Sector context: a weak June exit, but not a universal apparel collapse
Pakistan’s external-trade data supports the idea that the June exit was difficult for apparel exporters. PBS reported total exports down 9.1% year on year in US-dollar terms in June 2026. In rupee terms, June knitwear exports fell 21.3% year on year and readymade garments fell 13.9%; both also fell sharply month on month. That backdrop is directionally consistent with weaker external demand at INKL.
However, peer evidence shows the pressure was not uniform. Official PSX data for Interloop Limited shows FY2026 sales increased 5.5% to Rs182.8 billion and PAT rose strongly, with gross margin improving. The peer is much larger and not directly comparable in scale or customer mix, so it is not a clean benchmark. Still, its growth demonstrates that INKL’s 28.7% annual and 45.9% implied-Q4 sales declines cannot be explained solely by a sector-wide fall in apparel demand. Company-specific customer mix, pricing competitiveness and order capture also matter, even though the current filing does not quantify them.
Recurring versus non-recurring drivers
The recurring positive is the improvement in gross margin: it appeared in both the nine-month period and the full year, and it survived the implied Q4 revenue collapse. The reduction in year-end receivables and short-term borrowing is also economically meaningful, because it lowers balance-sheet strain.
The less recurring contributors are the tax credits, investment fair-value gains and the large working-capital release. The implied Q4 tax benefit cushioned PAT; fair-value gains depend on market values; and receivable collection can generate a one-time cash boost when a previously enlarged working-capital balance normalizes.
The recurring negatives are more important to monitor: weak export volumes, shrinking scale, elevated finance cost relative to operating profit and a higher operating-expense burden. Those factors determine whether the margin repair can translate into sustainable earnings growth.
Dividend and corporate actions
The Board recommended no cash dividend, bonus shares or rights issue with the FY2026 result. During FY2026 the company paid the 10% cash dividend approved for the prior year, reflected in the cash-flow statement. No new shareholder entitlement therefore accompanied the June 2026 year-end result.
What to monitor next
The next result should answer five questions. First, whether export sales stabilize after the 62% nine-month decline and weak June sector data. Second, whether local sales can continue to grow without sacrificing the improved gross margin. Third, whether finance cost falls as the lower year-end short-term borrowing balance works through the income statement. Fourth, whether receivables remain controlled after the large FY2026 collection, rather than rebuilding and forcing renewed bank borrowing. Fifth, whether gross margin can remain near double digits as volume changes.
The FY2026 result is therefore best described as balance-sheet and margin repair inside a severe revenue contraction. International Knitwear ended the year with stronger liquidity, lower short-term debt and a better gross margin than FY2025, but earnings quality remains constrained by lost scale and financing costs. The next cycle needs a volume recovery—especially in exports—without reversing those improvements.
Sources
- Pakistan Stock Exchange — International Knitwear Limited, audited financial result for the year ended June 30, 2026
- Pakistan Stock Exchange — International Knitwear Limited, third-quarter and nine-month report ended March 31, 2026
- Pakistan Bureau of Statistics — Advance Release on External Trade Statistics, June 2026
- State Bank of Pakistan — policy-rate change effective April 28, 2026
- Pakistan Stock Exchange — Interloop Limited FY2026 financials and disclosures