Verdict: International Steels Limited ended FY2026 with a genuine operating recovery. Sales volume rose 62%, exports more than doubled, revenue increased nearly 50%, and the audited gross margin widened to 11.49% from 8.58%. The fourth quarter was the strongest of the year, with revenue of Rs26.1 billion, gross margin of 13.58% and profit after tax of Rs1.27 billion. The key qualification is cash conversion: FY2026 operating cash flow remained negative because inventory and receivables absorbed substantial cash, and short-term borrowings more than doubled year on year. The next cycle therefore needs to confirm that higher volumes and better margins can persist without rebuilding working capital and bank debt.
Results at a glance
- Company Name: International Steels Limited
- Ticker: ISL
- Reporting period: year ended June 30, 2026. The annual financial statements are audited by A.F. Ferguson & Co. and present International Steels Limited on a standalone basis, with its associate accounted for under the equity method. The annual report also provides company-reported quarterly variation data, so Q4 figures below are taken from that official disclosure rather than mechanically derived.
- FY2026 revenue was Rs93.35 billion, up 49.8% from Rs62.31 billion. Gross profit rose 100.7% to Rs10.73 billion and operating profit increased 116.5% to Rs7.18 billion.
- Gross margin expanded to 11.49% from 8.58%, while operating margin improved to 7.69% from 5.32%. Profit after tax increased 135.6% to Rs3.67 billion and EPS rose to Rs8.44 from Rs3.58.
- Q4 revenue was Rs26.07 billion, up 56.7% year on year and 11.8% sequentially. Q4 gross margin reached 13.58%, operating margin 9.10%, PAT Rs1.27 billion and EPS Rs2.91.
- The board proposed a final cash dividend of Rs3.00 per share in addition to the Rs2.00 interim dividend already paid, taking the FY2026 total to Rs5.00 per share if shareholders approve the final distribution.
- FY2026 net operating cash flow was negative Rs3.95 billion versus positive Rs2.30 billion a year earlier. Stock-in-trade ended at Rs26.79 billion, trade debts at Rs3.12 billion and short-term borrowings at Rs10.67 billion.
AlphaGen model outputs
The following are AlphaGen model outputs, not company-reported figures:
- Alpha QoQ Score: 97.55
- TTM Performance Score: 97.55
- 3Y Business Perf Score: 44.46
- Sector Leadership Score: 46.03
What improved
The clearest change was scale. ISL sold about 434.5 thousand metric tonnes in FY2026, 62% more than the previous year, while production reached 447 thousand tonnes, up 69%. Management reported that domestic market share increased from 23% to 28%, while export volume rose 108% to roughly 90.5 thousand tonnes, led by Europe and North America. That combination matters because the revenue increase was not simply a price effect: physical throughput and market penetration moved sharply higher.
The larger production base materially changed unit economics. Management attributes the margin recovery to higher capacity utilisation and fixed-cost absorption, disciplined procurement, manufacturing efficiency, a better energy mix and tighter control of operating costs. ISL operates a 19 MW captive power plant, a 6.4 MW solar system and grid supply; the company says a higher solar contribution and consumption-efficiency measures lowered per-unit energy cost. In a conversion business where raw material dominates cost, improved plant loading and energy efficiency can have an outsized effect on gross margin once volumes recover.
The fourth quarter shows that the operating improvement strengthened into year-end rather than fading. Revenue increased to Rs26.07 billion from Rs23.33 billion in Q3, gross profit rose 40.0% sequentially to Rs3.54 billion and operating profit increased 34.4% to Rs2.37 billion. Q4 gross margin of 13.58% was the highest quarterly margin of FY2026, compared with 10.84% in Q3 and 10.68% in the comparable quarter. PAT rose 59.5% sequentially and 108.1% year on year.
There is also evidence that the improvement was not unique to one company. Aisha Steel Mills, another listed flat-steel producer, reported FY2026 sales of Rs54.24 billion versus Rs33.75 billion a year earlier and returned to a Rs981 million profit from a Rs1.35 billion loss. That does not prove identical economics across the two companies, but it supports the view that parts of the flat-steel market improved during FY2026.
What weakened / needs attention
The main weakness is that earnings growth did not convert into full-year cash. Cash generated from operations before finance costs and taxes fell to only Rs139 million from Rs4.69 billion, and net operating cash flow swung to an outflow of Rs3.95 billion from an inflow of Rs2.30 billion. The working-capital bridge explains the gap: inventory absorbed Rs4.99 billion, trade debts absorbed Rs1.76 billion and the decline in trade and other payables absorbed another Rs1.80 billion.
The year-end balance sheet therefore remains heavier. Stock-in-trade rose 22.9% to Rs26.79 billion and trade debts more than doubled to Rs3.12 billion. Short-term borrowings climbed to Rs10.67 billion from Rs4.55 billion. This is not the same as a long-term solvency problem: equity remained Rs26.81 billion and long-term financing was relatively modest. But it means a meaningful portion of the operating recovery was financed through short-duration bank funding.
There was meaningful improvement inside Q4. At March 31, nine-month operating cash flow was negative Rs9.26 billion; the full-year outflow was negative Rs3.95 billion. The difference implies roughly Rs5.31 billion of positive operating cash flow in the June quarter. Management also reports that short-term borrowings declined by about Rs5 billion quarter on quarter into year-end. That is encouraging, but the year-end borrowing balance was still more than twice the prior-year level, so one quarter of release does not yet close the cash-conversion issue.
Finance cost rose to Rs1.21 billion from Rs806 million despite an easier benchmark-rate environment than the previous year. The reason is visible in the funding mix: interest and mark-up on short-term facilities increased as the borrowing base expanded. Q4 finance cost eased to Rs240 million from Rs353 million in Q3, which is a positive direction, but working-capital discipline remains necessary if lower rates are to translate into a durable reduction in finance expense.
Why the recovery looks company-specific as well as cyclical
ISL’s own market data says domestic flat-steel demand increased 25% to about 1.25 million tonnes during FY2026 as industrial and commercial activity recovered. Yet the Pakistan Bureau of Statistics reports that the broader Iron & Steel Products category of large-scale manufacturing declined 7.84% over July-June 2025-26. Those measures cover different scopes, so they should not be compared one-for-one. Still, the contrast is useful: ISL’s 62% sales-volume increase was much stronger than the broad official iron-and-steel production backdrop, consistent with the company’s reported domestic market-share gain and sharp export expansion.
The regulatory environment also mattered. The National Tariff Commission’s official record shows that anti-dumping coverage on galvanized steel from China was extended on June 28, 2025 to address circumvention through Galvalume products, with a 40.47% duty. NTC also initiated a new investigation into colour-coated steel coils and sheets from China in April 2026. These measures do not eliminate import pressure, and ISL itself says imports still represented a large share of the domestic flat-steel market, but they are relevant to pricing discipline and the competitive environment for local coated-steel producers.
Financing conditions were another tailwind for end demand. The State Bank of Pakistan kept its policy rate at 11.5% in June 2026, materially below the levels that prevailed earlier in the economic cycle. Lower financing costs can support automobiles, appliances, construction and other steel-consuming activity. For ISL specifically, however, the benefit was partly offset by the much larger working-capital borrowing base.
Recurring versus exceptional earnings
The most repeatable-looking part of FY2026 is the operating line: higher physical volumes, stronger market share, more exports, improved plant utilisation and better gross margin. These drivers are tied directly to the steel business. They can still reverse if demand, product spreads, raw-material prices, energy costs or exchange rates move adversely, but they are economically different from a one-time accounting gain.
Associate income deserves separate treatment. ISL’s investment in Chinoy Engineering & Construction generated Rs480.6 million of equity-accounted income before a Rs60.8 million impairment, leaving a net annual P&L contribution of about Rs419.8 million. The impairment arose because the investment was marked down to the proposed Rs350 million buyback consideration. Management plans to exit the holding, subject to approvals, after having received dividends of about Rs163 million and expecting Rs350 million of sale proceeds. The impairment is non-recurring, while the associate contribution itself should not be assumed to continue once the disposal is completed.
Other income actually declined to Rs143 million from Rs259 million, so treasury and miscellaneous income did not drive the earnings surge. Conversely, other expenses increased sharply to Rs982 million from Rs367 million, including a much larger exchange loss. That makes the operating recovery more important: stronger gross and operating profit absorbed both higher finance expense and higher other expenses.
Historical pattern and what changed
FY2026 reversed the earnings compression seen in FY2025. Revenue had fallen from Rs69.30 billion in FY2024 to Rs62.31 billion in FY2025, while PAT dropped from Rs3.65 billion to Rs1.56 billion and gross margin compressed to 8.58%. FY2026 revenue moved well above both prior years and PAT returned to roughly the FY2024 level, but on a much larger revenue base. The important distinction is that profitability recovered without gross margin fully returning to FY2024’s 12.37%; the business earned more largely because much higher volumes were processed through the fixed-cost base.
That makes volume durability especially important. If volumes remain high, a margin around FY2026 levels can support healthy operating profit. If sales volume normalises sharply while raw-material and energy costs stay elevated, fixed-cost absorption can reverse. The 13.58% Q4 gross margin therefore sets a demanding benchmark for the next result rather than a level that should automatically be annualised.
What to monitor next
First, watch volumes and gross margin together. A continuation of strong domestic share and exports with gross margin near the Q4 level would indicate that the FY2026 operating reset is holding. Volume growth without margin discipline would be less valuable, particularly because freight and raw-material requirements rise with throughput.
Second, track inventory, receivables, payables and short-term borrowings as one system. The strongest next result would pair continued profit growth with lower working-capital absorption. A renewed build in inventory and trade debts funded by bank lines would keep cash conversion and finance cost under pressure even if reported earnings remain strong.
Third, monitor the export mix and domestic market share. Exports were an important capacity-utilisation outlet in FY2026, but global steel markets remain exposed to Chinese overcapacity, trade barriers and price volatility. Domestic growth carries its own sensitivities to automobiles, appliances, construction, infrastructure and financing conditions.
Fourth, watch raw-material, energy and exchange-rate movements. Hot-rolled steel is a key input, energy remains material to conversion cost, and the company recorded a much larger exchange loss in FY2026. The reported gains from disciplined procurement and a more efficient energy mix need to be tested against the next cost cycle.
Finally, separate the core steel run rate from the CECL exit. The proposed disposal can release Rs350 million of cash and removes a non-core associate from future reporting, but it should not be confused with the recurring drivers of steel earnings. After disposal, the quality of results will be easier to judge directly through sales volume, gross margin, operating profit and cash conversion.
Sources
- International Steels Limited — Annual Report 2026, including audited financial statements, directors’ report, quarterly variation analysis, working-capital disclosures and dividend information. Open source.
- International Steels Limited — official unaudited nine-month report for the period ended March 31, 2026, used to verify the interim reporting basis and cash-flow bridge into Q4. Open source.
- Pakistan Stock Exchange — ISL issuer page, used to verify company identity, fiscal year-end, the August 20, 2026 financial-result announcement and September 14, 2026 annual-report transmission. Open source.
- National Tariff Commission — official anti-dumping measures in force and investigation records, used for galvanized and colour-coated steel trade-remedy context. Open source.
- Pakistan Bureau of Statistics — official FY2025-26 large-scale manufacturing data, used to compare ISL’s flat-steel recovery with the broader Iron & Steel Products production backdrop. Open source.
- State Bank of Pakistan — Monetary Policy Statement dated June 15, 2026, used for the year-end financing-rate backdrop. Open source.
- Pakistan Stock Exchange — Aisha Steel Mills issuer page, used as an official listed-peer cross-check for FY2026 flat-steel sales and profitability. Open source.