International Steels Limited (ISL) opened FY2027 with a much stronger operating result and an even larger jump in reported earnings. For the unaudited quarter ended September 30, 2026, revenue rose 13.6% year on year, gross profit climbed 44.8%, and operating profit increased 65.5%. Profit after tax reached Rs2.21 billion, 3.6 times the prior-year quarter. The verdict is positive on operating momentum, but mixed on earnings quality: a Rs2.07 billion other-income line supplied about 60% of profit before tax, while inventory and short-term borrowing rose sharply and operating cash flow remained deeply negative.
Results at a glance
The result is for the three months ended September 30, 2026, on an unaudited company-only basis. The filing is presented in Pakistani rupees thousands; figures below are translated into billions or millions for readability. The board recommended no cash dividend, bonus shares, right shares, or other entitlement for the quarter.
Revenue was Rs23.76 billion versus Rs20.92 billion a year earlier. Cost of sales rose more slowly, by 9.6% to Rs20.35 billion, so gross profit expanded to Rs3.41 billion from Rs2.35 billion. Selling and distribution expense increased to Rs906.9 million from Rs802.1 million, while administrative expense rose to Rs149.6 million from Rs129.9 million. Even after those increases, operating profit improved to Rs2.35 billion from Rs1.42 billion.
Below operating profit, finance cost rose 78.6% to Rs490.2 million and other expenses increased 161.1% to Rs472.6 million. These pressures were more than offset by other income of Rs2.07 billion, up from only Rs17.6 million. Profit before tax was therefore Rs3.46 billion versus Rs983.8 million. Tax expense rose to Rs1.25 billion from Rs363.5 million, leaving profit after tax at Rs2.21 billion versus Rs620.3 million. Basic and diluted EPS increased to Rs5.07 from Rs1.43.
AlphaGen model scores
These are AlphaGen model outputs, not figures reported by the company: Alpha QoQ Score 94.02; TTM Performance Score 95.50; 3Y Business Perf Score 54.78; Sector Leadership Score 65.19. The contrast between very strong short-term scores and a more moderate three-year score fits the financial record: the latest quarter is a sharp improvement, but the business remains cyclical and working-capital intensive.
What improved
The cleanest improvement was at gross profit. Revenue increased by Rs2.84 billion year on year, while cost of sales increased by Rs1.79 billion. That widened gross profit by Rs1.06 billion. Gross margin rose to 14.34% from 11.25%, a gain of about 3.1 percentage points. The filing does not split this improvement between volume, selling prices, product mix, exports, or raw-material costs, so it would be speculative to assign a company-specific cause. What is demonstrable is that the cost base grew substantially more slowly than sales.
Operating leverage was also favorable. Combined selling and administrative expenses increased 13.4%, broadly in line with revenue, allowing the larger gross-profit pool to flow through. Operating margin reached 9.90%, compared with 6.79% in the September 2025 quarter. On a year-on-year basis, operating profit rose by Rs930.6 million, which is a material improvement even before considering other income.
The latest quarter also extends the recovery visible in FY2026. PSX data show FY2026 revenue of Rs93.35 billion, up from Rs62.31 billion in FY2025, while annual profit after tax increased to Rs3.67 billion from Rs1.56 billion. Gross margin recovered to 11.49% in FY2026 from 8.58% in FY2025, though it remained below 12.37% in FY2024 and 13.82% in FY2023. The first-quarter gross margin of 14.34% is therefore stronger than each of those four full-year readings.
A rolling twelve-month calculation gives additional perspective. Taking FY2026, adding the September 2026 quarter, and subtracting the September 2025 quarter produces revenue of about Rs96.19 billion, profit after tax of Rs5.26 billion, and EPS of Rs12.08. On the same basis, gross margin is approximately 12.25%, operating margin 8.43%, and net margin 5.47%. The calculation is reproducible from the PSX annual and quarterly figures and shows that the current quarter materially lifts the recent run rate.
What weakened / needs attention
The largest caveat is the other-income line. At Rs2.07 billion, it represented 59.9% of reported profit before tax. The six-page PSX result references note 12 but does not include the notes, and ISL’s investor page had not yet posted the complete September 2026 quarterly report when reviewed. The source of this income—and therefore whether it is recurring—could not be verified from the current public package. It should not be treated as ordinary operating earnings until the detailed note is available.
Removing other income only as an analytical bridge, not as an accounting adjustment, leaves Rs1.39 billion of pre-tax profit after finance cost and other expenses. The comparable figure was about Rs966.2 million, implying roughly 43.8% year-on-year growth. This shows that the underlying quarter still improved meaningfully; it also shows that the headline 256% increase in profit after tax overstates the growth in the recurring operating engine.
Finance cost and other expenses moved in the wrong direction. Finance cost nearly doubled to Rs490.2 million, while other expenses rose by Rs291.9 million. Together they absorbed Rs962.8 million, compared with Rs455.2 million a year earlier. The higher financing burden is consistent with the balance sheet, where short-term borrowing more than doubled between June and September.
Working capital is the other major concern. Stock-in-trade rose to Rs42.15 billion at September 30 from Rs26.79 billion at June 30, an increase of Rs15.36 billion, or 57.3%, in only three months. Trade receivables fell to Rs1.19 billion from Rs3.12 billion, but that release was far smaller than the inventory build. Sales-tax receivable also increased to Rs2.05 billion from Rs207.9 million. The combined movement tied up a large amount of cash.
Short-term borrowings consequently increased to Rs21.58 billion from Rs10.67 billion at June 30, up 102.4%. Including disclosed long-term and current portions, finance borrowings were at least Rs22.25 billion before lease liabilities, compared with roughly Rs11.37 billion at year-end. Cash and bank balances were almost unchanged at Rs2.69 billion. Current assets still covered current liabilities by about 1.33 times, but that coverage was dominated by inventory; excluding inventory, liquid current assets were only about 0.23 times current liabilities.
Cash flow confirms the pressure. Net cash used in operating activities was Rs10.18 billion, worse than the Rs9.10 billion outflow in the prior-year quarter. Capital expenditure consumed another Rs638.3 million. A simple operating-cash-flow-minus-capex measure was therefore negative Rs10.82 billion. ISL funded most of the gap with Rs10.92 billion of net short-term borrowings. The quarter ended with a Rs97.2 million increase in cash and cash equivalents, but that stability came from additional debt rather than internal cash generation.
The filing’s cash-flow cash-equivalent balance of Rs1.60 billion is lower than the Rs2.69 billion cash-and-bank figure on the balance sheet, indicating that not all bank balances meet the cash-equivalent definition. The abbreviated result does not provide the detailed note needed to explain that difference. This does not undermine the earnings result, but it is another reason to avoid claiming strong cash conversion.
Industry and cycle context
The broader manufacturing backdrop was not uniformly supportive. Pakistan Bureau of Statistics reported that overall large-scale manufacturing grew 1.85% in July-August 2026, but iron and steel products declined 11.48% year on year over the same two months. Automobiles grew 32.45%, highlighting uneven demand across steel-consuming sectors. ISL’s 13.6% revenue growth against a weak broad iron-and-steel output index is notable, but the result filing does not disclose enough volume, pricing, export, or product-mix data to determine whether the gap reflects market share, mix, price, timing, or another factor.
Historically, ISL’s margins have moved widely with the cycle. The PSX series shows gross margin at 13.82% in FY2023, 12.37% in FY2024, 8.58% in FY2025, and 11.49% in FY2026. The September 2026 quarter is above that recent range, but a single quarter should not be extrapolated automatically—especially while inventory, borrowing, and finance cost are rising.
What to monitor next
First, the full quarterly report needs to explain the Rs2.07 billion other-income line. The nature, cash realization, and repeatability of that amount will determine how much of the earnings jump belongs in a sustainable run rate.
Second, inventory conversion is crucial. Investors should watch whether stock-in-trade falls from Rs42.15 billion as material is processed and sold, and whether the resulting cash is used to reduce short-term borrowings. If inventory remains elevated, finance cost could stay high even if margins hold.
Third, the durability of the 14.34% gross margin matters more than the headline EPS. Future disclosures on sales volumes, export mix, selling prices, and raw-material costs would allow a better assessment. Until those details are published, the arithmetic proves margin expansion but not its operational cause.
Fourth, operating cash flow must catch up with profit. A profitable quarter that consumes Rs10.18 billion of operating cash is not self-funding. Seasonal working-capital movements can reverse, but the next two statements should show whether the September build was temporary or structural.
Finally, the board declared no quarterly payout. Given the borrowing and cash-flow profile, that restraint is understandable. The more important near-term signal is balance-sheet normalization, not an immediate distribution.
Bottom line
ISL delivered a genuinely better operating quarter: sales grew, gross margin expanded, and operating profit rose much faster than revenue. That improvement survives a conservative reading of the accounts. However, the reported profit surge was amplified by a large, currently unexplained other-income item, while working capital absorbed cash and doubled short-term borrowing. The result is best read as strong operating momentum with material earnings-quality and cash-conversion qualifications—not as evidence that every component of Rs5.07 EPS is repeatable.
Evidence coverage: PASS WITH DISCLOSED LIMITATIONS. The company, period, basis, earnings statements, balance sheet, and cash flow are publicly verified. The current short filing does not include the referenced notes, so the composition of other income and the volume/price/mix split remain unresolved. Omitting causal claims about those items preserves a defensible analysis.
Primary sources
PSX filing: Financial Results for the Quarter Ended September 30, 2026
PSX company page: International Steels Limited
International Steels investor reports and filings
Pakistan Bureau of Statistics: Industry and large-scale manufacturing data