Verdict
Khyber Tobacco Company Limited (KHTC) moved from a Rs274.65 million profit in FY2025 to a Rs1.021 billion loss for the year ended June 30, 2026. The decisive deterioration occurred at gross-profit level: net revenue fell only 5.7%, but cost of sales rose 13.3%, reducing gross profit by 92.6% and compressing gross margin from 17.9% to 1.4%. Once administrative, selling and credit-loss expenses were applied, the company reported a Rs729.63 million operating loss.
The full-year numbers also conceal a severe final quarter. The official nine-month filing showed a cumulative loss of Rs72.58 million through March. Subtracting that from the audited annual loss gives an approximately Rs948.14 million loss for the June quarter alone. Revenue in that quarter increased, but the company moved from a positive nine-month gross profit to a final-quarter gross loss. That combination points to a cost, inventory or year-end accounting shock rather than a simple demand slowdown.
Cash flow and liquidity weakened alongside earnings. Operating cash flow swung to an outflow of roughly Rs1.225 billion, cash fell 94%, borrowing rose materially, and current liabilities exceeded current assets at year-end. Lower finance cost and a tax credit softened the final loss but did not repair the core operating result. No dividend was declared.
Evidence coverage is sufficient for a useful article, with limitations. The official PSX result, PSX company page, issuer-hosted annual report link and official nine-month filing establish the identity, period, reporting basis and principal figures. The large annual-report file could not be extracted directly in this run, so detailed operating explanations are limited to publicly indexed filing extracts and arithmetic that can be reproduced from the statements. Where management did not quantify price, volume or mix, this article does not invent a split.
Results at a glance
- Reporting basis: audited standalone accounts for the year ended June 30, 2026; figures are Pakistani rupees.
- Net revenue: Rs9.326 billion, down 5.7% from Rs9.891 billion.
- Gross profit: Rs131.12 million, down 92.6%; gross margin fell to 1.4% from 17.9%.
- Operating result: Rs729.63 million loss, versus Rs983.58 million profit.
- Loss before final and revenue taxes: Rs972.10 million, versus Rs414.33 million profit.
- Loss after tax: Rs1.021 billion, versus Rs274.65 million profit.
- Loss per share: Rs147.45, versus earnings per share of Rs39.67.
- No cash dividend, bonus issue or rights issue was announced.
AlphaGen model scores
These are AlphaGen model outputs, not figures reported by KHTC: Alpha QoQ Score 1.92; TTM Performance Score 2.99; 3Y Business Perf Score 46.89; Sector Leadership Score 23.47. The very weak short-horizon readings align with the reported margin collapse, while the longer-period reading also reflects KHTC’s highly volatile profit history.
Why FY2026 deteriorated
Revenue declined by Rs565.15 million, but cost of sales increased by Rs1.079 billion. The resulting Rs1.644 billion reduction in gross profit explains almost the entire swing from operating profit to operating loss. For every Rs100 of net revenue, KHTC retained only about Rs1.41 before operating expenses, compared with Rs17.94 in FY2025. That margin left no room to absorb a normal corporate cost base.
Publicly indexed annual-report data indicate that local sales increased 11.2% to Rs2.95 billion while export sales fell 11.9% to Rs6.37 billion. Re-dried tobacco production reportedly fell 47.6%, cut-tobacco production fell 15.6%, and cigarette production declined 38.6%. Those movements show weaker output and an adverse sales mix, but they do not by themselves explain why cost of sales rose while revenue fell. The filing extract does not provide a complete price, raw-material, duty, inventory-write-down or product-mix bridge.
Operating expenses added further pressure. Administrative expenses fell 3.9% to Rs348.06 million and expected-credit-loss expense fell 54.6% to Rs47.39 million, but selling and distribution expense rose 43.3% to Rs465.29 million. Total administrative, selling and credit-loss expenses therefore increased to Rs860.74 million from Rs791.24 million. The operating result moved by Rs1.713 billion, from a Rs983.58 million profit to a Rs729.63 million loss.
Below operating profit, some lines improved. Other expenses dropped 80.4% to Rs51.30 million, and finance cost fell 35.1% to Rs213.32 million. Other income edged up to Rs22.15 million. Together, these reduced the damage by roughly Rs325 million compared with the prior year, but the gross-profit collapse was too large to offset.
KHTC then recorded a Rs116.57 million minimum-tax differential, taking the loss before income tax to Rs1.089 billion. A Rs67.95 million income-tax credit reduced the final loss to Rs1.021 billion. This distinction matters: the tax credit improved reported profit after tax, while the minimum-tax differential was an additional burden. Neither changes the conclusion that the business was deeply loss-making before income tax.
The final-quarter shock
The official nine-month accounts reported net revenue of Rs7.403 billion, gross profit of Rs713.55 million and a cumulative loss after tax of Rs72.58 million through March 31, 2026. Against the audited full-year figures, this implies June-quarter revenue of about Rs1.923 billion, a gross loss of roughly Rs582.43 million and a net loss of approximately Rs948.14 million.
The year-on-year comparison is equally stark. The comparable June quarter of FY2025 can be reconstructed at about Rs1.043 billion revenue, Rs414.60 million gross profit and a Rs150.63 million net loss. Revenue therefore rose sharply in the latest final quarter, yet gross profit deteriorated by nearly Rs997 million. Higher turnover without gross profit is a strong warning that revenue growth did not translate into economic value.
These figures are calculated by subtracting the official nine-month cumulative statements from the audited annual statements. They are not a separate company-reported quarterly table. They establish when the loss emerged, but the available public extracts do not identify a complete causal allocation. A future briefing should reconcile the final-quarter cost of sales with inventory valuation, duties, production volumes, product mix and any year-end adjustments.
Inventory, working capital and cash flow
Stock in trade increased to Rs10.55 billion from Rs10.34 billion even as annual revenue declined. Inventory represented more than half of total assets and exceeded the year’s net sales. That scale makes turnover, ageing and net-realisable-value assumptions central to earnings quality. KHTC’s historical results have also been volatile: profit after tax moved from Rs1.998 billion in FY2023 to a Rs1.022 billion loss in FY2024, a Rs274.65 million profit in FY2025 and a Rs1.021 billion loss in FY2026.
Trade debts rose to Rs1.57 billion from Rs957 million, while trade and other payables increased to Rs14.60 billion from Rs11.71 billion. Current assets rose to Rs16.08 billion, but current liabilities increased faster to Rs16.54 billion. The company therefore moved from a current-asset surplus of roughly Rs472 million to a deficit of about Rs457 million. A current ratio close to one masks the fact that most liquidity sits in inventory and receivables rather than cash.
Cash and bank balances fell to Rs78.51 million from Rs1.311 billion. Total debt increased to about Rs1.397 billion from Rs261 million, including more than Rs1.11 billion of short-term borrowing. This combination—lower cash, higher borrowing and a working-capital deficit—raises the importance of inventory conversion and receivable collection.
Operating cash flow reportedly changed from a Rs388.61 million inflow to an approximately Rs1.225 billion outflow. Public filing extracts attribute much of the pressure to around Rs3.26 billion of tax and duty payments. Free cash flow was also negative after capital expenditure. The company’s loss was therefore not a non-cash accounting event; it coincided with substantial cash absorption.
What improved
Finance cost declined by Rs115.35 million despite higher year-end borrowing, and other expenses fell by about Rs210 million. Administrative costs and credit-loss expense also declined. These savings show that not every cost line weakened and they prevented an even larger loss.
Local sales grew while exports declined, suggesting KHTC retained some domestic commercial momentum. The March quarter itself returned to profit after the December-quarter loss. Neither improvement carried into the full-year outcome, however, because the June-quarter gross loss overwhelmed the earlier recovery.
What weakened — and needs attention
Gross margin is the primary issue. A 1.4% annual margin is far below the level needed to cover Rs860.74 million of operating expenses. The next result must show whether the final-quarter pressure was temporary—such as an identifiable inventory or tax-related adjustment—or whether product economics have structurally weakened.
The balance sheet became more dependent on supplier financing and debt. Payables, inventory and receivables all increased while cash collapsed. Any delay in selling inventory, collecting receivables or recovering tax-related balances could intensify funding needs.
Corporate governance also warrants attention. Public annual-report extracts state that the Chief Financial Officer position remained vacant during the year. This is especially relevant during a period featuring a large final-quarter loss, heavy working-capital balances and complex tax and duty cash flows.
FBR announced in December 2025 that it had sealed KHTC godowns and seized approximately 2.75 million kilograms of allegedly non-duty-paid unmanufactured tobacco, estimating Rs1.1 billion of Federal Excise Duty exposure on the seized goods. That is a material regulatory event during FY2026. The public evidence used here does not establish the final legal outcome or quantify how it affected the audited loss, inventory or liabilities, so it is treated as a risk requiring reconciliation—not as an assumed cause of the result.
What to monitor next
- A detailed bridge for the June-quarter gross loss, including raw-tobacco cost, inventory valuation, product mix, duties and any year-end adjustments.
- Inventory ageing, net-realisable-value testing and the pace at which the Rs10.55 billion stock balance converts into sales and cash.
- Recovery of operating cash flow, reduction in short-term borrowing and restoration of a positive working-capital position.
- Export volumes and pricing, alongside whether domestic-sales growth can be achieved at sustainable margins.
- Resolution and financial-statement treatment of the FBR enforcement matter and related tax or duty exposures.
- Appointment of a Chief Financial Officer and improved disclosure around the company’s cost, tax and liquidity controls.
Evidence limitations
The core annual result, comparative figures, reporting basis, nine-month bridge and main balance-sheet and cash-flow movements are publicly traceable. The issuer-hosted annual report was identified, but its large file could not be extracted directly by the available web route, while the PSX PDF endpoint returned an access error. Accordingly, this article omits any unverified audit-opinion characterization, does not assign the final-quarter margin loss to a specific undisclosed accounting line, and labels the FBR matter as external regulatory context. These limitations do not prevent a defensible analysis of the reported earnings and liquidity deterioration.
Primary sources
KHTC FY2026 annual report on the issuer’s website.
KHTC FY2026 board financial result on PSX.
KHTC nine-month report ended March 31, 2026 on PSX.