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Kohinoor Energy Q3 FY26: Higher Sales, Thinner Generation Margins

Kohinoor Energy’s Q3 FY26 PAT rose on sharply lower finance costs, while gross margins, nine-month operating performance and cash conversion weakened.

Sep 23, 2026

Verdict

Kohinoor Energy Limited’s Q3 FY26 result is stronger at the bottom line than it first appears operationally. For the quarter ended March 31, 2026, consolidated revenue rose 37.5% year on year to Rs1.463 billion and profit after tax increased 24.5% to Rs224.0 million. But the quality of that growth was mixed: gross profit declined 3.8%, gross margin fell to 21.9% from 31.3%, and operating profit dropped 8.2%. The decisive offset was finance cost, which fell 77.8% to Rs18.3 million from Rs82.7 million.

Kohinoor Energy Limited’s sales are shaped by system dispatch and fuel-related billing under its PPA. Q3’s higher revenue did not translate into a stronger operating spread. Raw material consumed rose 74.4% year on year, much faster than sales, while the company’s nine-month capacity factor remained only 5.55%. The quarter therefore looks less like a broad operating rebound and more like a period in which higher billing activity was accompanied by weaker gross economics, with lower financing expense rescuing net earnings.

The nine-month picture is softer. Revenue fell 3.6% to Rs2.845 billion, gross profit fell 35.1%, operating profit fell 39.2%, and PAT declined 11.0% to Rs449.4 million. Cash conversion also weakened sharply because working capital absorbed cash rather than releasing it. The balance sheet itself remains liquid, however: short-term borrowings fell, current liabilities declined and cash increased.

Company and reporting basis

Company Name: Kohinoor Energy Limited

Ticker: KOHE

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

Reporting basis: unaudited condensed consolidated interim financial statements prepared under IAS 34 and the Companies Act, 2017. The company also publishes unconsolidated statements; the consolidated numbers are economically almost identical because its wholly owned subsidiary, KEL Power Solutions (Private) Limited, is still small relative to the power-generation business.

The Board approved the result on April 23, 2026. The company operates a 124 MW furnace-oil-fired power plant near Lahore and sells electricity under a PPA with CPPA-G. During the nine months, the plant delivered 45,278 MWh at a 5.55% capacity factor, versus 43,276 MWh and a 5.31% capacity factor in the comparable period.

AlphaGen model outputs

Alpha QoQ Score: 87.55

TTM Performance Score: 23.96

3Y Business Perf Score: 28.03

Sector Leadership Score: 66.7654

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

Results at a glance

  • Q3 revenue: Rs1.463 billion, up 37.5% year on year.
  • Q3 gross profit: Rs320.1 million, down 3.8%; gross margin fell to 21.9% from 31.3%.
  • Q3 operating profit: Rs242.4 million, down 8.2%; operating margin fell to 16.6% from 24.8%.
  • Q3 finance cost: Rs18.3 million, down 77.8%.
  • Q3 PAT: Rs224.0 million, up 24.5%; EPS rose to Rs1.32 from Rs1.06.
  • 9MFY26 revenue: Rs2.845 billion, down 3.6%; PAT: Rs449.4 million, down 11.0%.
  • 9MFY26 net operating cash flow: Rs227.8 million versus Rs1.947 billion a year earlier.
  • No cash dividend was announced with the Q3 result.

What improved

The clearest improvement was below the operating line. Q3 finance cost fell to Rs18.3 million from Rs82.7 million, while nine-month finance cost fell to Rs47.3 million from Rs305.2 million. At March 2026, secured short-term finance stood at Rs737.5 million, down 29.8% from Rs1.051 billion at June 2025. The company’s disclosed borrowing rates were also materially lower: conventional short-term facilities carried 11.13%-12.64%, compared with 12.33%-21.88% at June 2025, while Islamic arrangements were at 10.99%-11.61%, versus 11.61%-22.59%.

The broader rate environment reinforced that improvement. SBP’s policy rate was 12% during most of the January-March 2025 comparison quarter, whereas it was 10.5% through Q3 FY26 after the December 2025 easing. Lower rates alone do not explain the entire finance-cost decline because borrowings also fell, but they strengthened the benefit.

Liquidity metrics also improved. Current assets rose to Rs3.116 billion from Rs2.851 billion while current liabilities fell to Rs964.3 million from Rs1.321 billion. That lifted the current ratio to roughly 3.2x from 2.2x. Cash and bank balances increased to Rs201.4 million from Rs77.0 million, while accrued finance cost fell to Rs10.7 million from Rs31.4 million.

What weakened / needs attention

The core operating spread weakened sharply. Q3 cost of sales rose 56.4% while revenue rose 37.5%, compressing gross margin by about 9.4 percentage points. Raw material consumed rose to Rs965.9 million from Rs553.8 million. Because fuel is the dominant variable input for a furnace-oil plant and the company operates under a PPA, the revenue jump should not be interpreted as equivalent to volume-led industrial growth. The financial statements show that the incremental revenue carried a much heavier direct-cost burden.

The nine-month comparison makes that clearer. Generation increased 4.6% to 45,278 MWh and capacity factor edged up, yet revenue fell 3.6% and gross profit fell 35.1% to Rs710.4 million. Raw material consumed increased 24.4% to Rs1.574 billion. That combination points to weaker revenue-cost realization economics despite slightly higher physical dispatch. The exact split between fuel-price effects, dispatch timing and tariff components is not disclosed in the interim report, so attributing the margin decline to any single one would go beyond the evidence.

Operating profit also deteriorated. Q3 operating profit fell 8.2% to Rs242.4 million even though revenue was much higher, and nine-month operating profit fell 39.2% to Rs497.9 million. Other operating income was negligible in Q3 and fell materially over nine months, so there was little non-core operating support.

Why Q3 profit still rose

The bridge from weaker operating performance to higher PAT is straightforward. Q3 operating profit declined by about Rs21.6 million year on year, but finance cost fell by about Rs64.3 million. That more than offset the operating decline and lifted profit before tax. Tax and final-levy charges were immaterial in both quarters, leaving PAT at Rs224.0 million versus Rs179.9 million.

This makes the finance-cost reduction the most important positive earnings driver in the quarter. It is partly recurring because debt is lower than at June 2025, but it should not be treated as permanently locked in. After the reporting period, SBP raised its policy rate by 100 basis points to 11.5% effective April 28, 2026. If short-term funding remains outstanding, the next result may see some of the rate tailwind reverse even if borrowings stay below last year’s level.

Nine-month earnings tell a different story

For 9MFY26, the operating deterioration was too large for cheaper financing to fully offset. Revenue slipped to Rs2.845 billion from Rs2.953 billion, gross profit fell to Rs710.4 million from Rs1.094 billion and operating profit fell to Rs497.9 million from Rs819.3 million. Finance cost dropped by Rs257.9 million, but PAT still declined to Rs449.4 million from Rs504.9 million.

Gross margin fell to 25.0% from 37.0% and operating margin to 17.5% from 27.7%. Net margin declined much less, to 15.8% from 17.1%, precisely because financing costs absorbed far less of operating profit. This is a useful distinction: financial efficiency improved meaningfully, but the underlying generation economics weakened.

Operations and utilization

The plant’s nine-month capacity factor increased to 5.55% from 5.31%, and delivered electricity rose 4.6%. That confirms the plant was dispatched slightly more in physical terms. But 5.55% remains a very low utilization rate for a 124 MW asset, underscoring that KOHE’s earnings profile is governed by the contractual and system-dispatch framework rather than by maximizing plant throughput.

Management reported that one engine underwent an overhaul under the 8,000-hour maintenance program during the period, compared with none in the prior-year period, and stated that the generating sets and auxiliary equipment remained in good condition. This is operationally important because reliability preserves the asset’s ability to respond when dispatched, but the overhaul is a maintenance-cycle item rather than evidence of structural demand growth.

Cash conversion: the major weakness behind the earnings

Nine-month net cash from operating activities fell to Rs227.8 million from Rs1.947 billion. Profit before working-capital changes was Rs681.7 million, down from Rs948.1 million, but working capital then absorbed about Rs367.5 million, versus a Rs1.337 billion release in the comparable period.

Trade receivables increased to Rs1.443 billion from Rs1.209 billion at June 2025, while stock-in-trade increased to Rs532.0 million from Rs366.1 million. The cash-flow note shows a Rs234.1 million increase in trade debts and a Rs166.0 million increase in stock during the nine months. In the prior period, a large reduction in trade debts had released cash. This reversal explains why accounting profit converted into much less operating cash this year.

That is not yet a liquidity crisis. Current assets exceed current liabilities by about Rs2.15 billion, short-term finance has fallen, and the company also realized cash from short-term investments. But receivable collection and fuel inventory remain important because both can force renewed use of short-term bank lines if operating cash conversion weakens further.

Dividend and capital allocation

The Board announced no cash dividend with the Q3 result. That contrasts with the comparable nine-month period of FY25, when the company had paid a first interim dividend of Rs7 per share, amounting to roughly Rs1.186 billion. The current-period cash-flow statement shows only Rs1.2 million of dividend payments, largely reflecting settlement of prior liabilities rather than a new large distribution. Retaining cash is economically understandable while the business approaches a major contractual transition and is exploring new opportunities; the key question is how efficiently that retained capital is redeployed.

PPA runway and post-quarter strategic moves

The existing PPA was originally for 30 years from June 19, 1997. A February 2025 amendment extended it by 161 days, so the amended PPA is now due to expire on November 27, 2027. Management states that it expects operations to remain sustainable beyond that date and is exploring opportunities including the competitive bilateral market and potential direct supply arrangements with industrial bulk consumers. These are management expectations, not contracted replacement revenues.

The company also established KEL Power Solutions, a wholly owned subsidiary focused on solar and related energy services. The subsidiary remains financially immaterial in the March 2026 group accounts, so it should be treated as strategic optionality rather than a current earnings engine.

A more recent development broadens that strategic optionality. On August 6, 2026, KOHE disclosed that its Board had approved participation in a consortium seeking to acquire FESCO through the government’s privatisation process, with Pakgen designated as lead consortium member. KOHE explicitly stated that it had assumed no binding obligation and that the transaction remained subject to pre-qualification and corporate/regulatory approvals. The Privatisation Commission separately confirms that FESCO is part of the first batch of DISCOs being offered with 51%-100% ownership and management control. For now, this is a strategic process, not an earnings forecast.

Recurring versus non-recurring drivers

The quarter contains no large disclosed exceptional gain that explains PAT. The most important favorable driver—lower finance cost—is recurring in the sense that it arises from the financing structure, but its magnitude depends on debt balances and benchmark rates. Conversely, the fuel/raw-material burden and dispatch economics are core recurring features of the generation business, even though their quarterly intensity can vary significantly. The engine overhaul is episodic maintenance within a recurring lifecycle program.

What to monitor next

First, gross margin and raw-material intensity: Q3 revenue growth was not accompanied by gross-profit growth, so the next quarter needs to show whether the margin compression was temporary or persistent.

Second, finance cost after the April policy-rate increase. Debt is lower, which provides a buffer, but the benchmark-rate tailwind became less favorable after quarter-end.

Third, receivables and operating cash flow. Trade debts and fuel inventory absorbed cash in 9MFY26; reversal of that working-capital build would materially improve cash conversion.

Fourth, dispatch and capacity factor. The 5.55% nine-month capacity factor remains low, and physical generation only modestly improved. The relationship between dispatch, tariff recovery and fuel cost will continue to determine operating profitability.

Fifth, the November 2027 PPA expiry pathway. Any concrete bilateral supply arrangements, competitive-market participation or other replacement revenue structures would be more meaningful than broad management expectations.

Finally, the FESCO consortium process and KEL Power Solutions should be watched for binding commitments, capital requirements and identifiable earnings contributions. Until those emerge, KOHE remains principally a low-utilization legacy IPP whose Q3 earnings improvement was driven more by financing relief than by stronger operating margins.

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