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Kohinoor Industries Q3 FY26: Tenant Vacancy Hits Rent as a Levy Credit Lifts Profit

Kohinoor Industries’ Q3 rental income fell 65.8% after a major tenant exit, while a Rs15.5m levy credit lifted PAT despite a steep operating-profit decline.

Sep 23, 2026

Verdict

Kohinoor Industries Limited’s Q3 FY26 bottom line looks much stronger than its operating performance. Rental income fell 65.8% year on year to Rs7.34 million and operating profit fell 76.3% to Rs3.13 million after a major tenant vacated space. Yet profit after tax more than doubled to Rs18.86 million because the quarter included a Rs15.52 million credit on the levy line and only Rs0.10 million of income tax. The supported reading is therefore not an earnings recovery: the core rental engine weakened sharply, while an unusual below-the-line credit lifted reported profit.

The nine-month picture confirms that distinction. Rental income fell 43.8% to Rs36.15 million, operating profit fell 60.7% to Rs21.23 million and PAT fell 65.5% to Rs14.54 million. Operating cash flow also swung from an Rs18.08 million inflow to a Rs17.64 million outflow. Re-leasing the vacant property, rather than the Q3 PAT headline, is the central issue for the next result cycle.

Company and reporting basis

Company Name: Kohinoor Industries Limited

Ticker: KOIL

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

Reporting basis: unaudited company-level condensed interim financial statements. The report states that the interim financial statements were prepared under IAS 34 and applicable Companies Act requirements and were subjected to a limited-scope review by the company’s auditors. PSX records both the financial-result announcement and transmission of the third-quarter report on April 30, 2026.

Although PSX classifies KOIL in textiles, its present economics are not those of a textile manufacturer. The company closed its textile operations in 2008 and subsequently shifted to leasing its land and buildings under operating-lease arrangements. Its investment property is in Madina Town, Faisalabad.

AlphaGen model outputs

Alpha QoQ Score: 70.99

TTM Performance Score: 20.78

3Y Business Perf Score: 69.08

Sector Leadership Score: 73.5944

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

Results at a glance

  • Q3 rental income: Rs7.34 million, down 65.8% from Rs21.46 million.
  • Q3 operating profit: Rs3.13 million, down 76.3% from Rs13.17 million.
  • Q3 PAT: Rs18.86 million, up 101.8%, but after a Rs15.52 million levy credit versus a Rs0.37 million levy expense a year earlier.
  • 9MFY26 rental income: Rs36.15 million, down 43.8%; operating profit fell 60.7% to Rs21.23 million.
  • 9MFY26 PAT: Rs14.54 million, down 65.5%; EPS fell to Rs0.48 from Rs1.39.
  • Net operating cash flow: negative Rs17.64 million versus positive Rs18.08 million.
  • Investment property: Rs923.30 million, about 80.6% of total assets, underscoring the concentration of the business in property income.

What improved

There were some genuine positives, but they were not large enough to offset the loss of rent. Q3 administrative expense fell 22.6% to Rs7.51 million. Other income rose to Rs3.20 million from Rs1.42 million, and KOIL’s share of profit from associate Kohinoor Power Company increased to Rs0.31 million from Rs0.12 million for the quarter. These items helped keep operating and pre-levy profit positive even after the rental decline.

Liquidity ratios also improved mechanically because current liabilities contracted faster than current assets. Current assets fell 12.9% from June 2025 to Rs189.25 million, but current liabilities fell 26.5% to Rs40.22 million. That lifts the simple current ratio to about 4.7 times from about 4.0 times. Finance cost remained negligible at only Rs12,970 for the nine-month period, so KOIL is not facing the sort of bank-interest burden that dominates many leveraged operating companies.

What weakened / needs attention

Rental income is the main weakness, and it is directly explained by management. In the Q3 directors’ report, management said the profit reduction was mainly due to lower rental income after a major tenant vacated space that had not yet been reoccupied, citing current economic conditions. The company had already warned in its FY25 corporate briefing that Beacon Impex (Private) Limited would vacate approximately 278,892 square feet from October 2025 and that revenue could decline in subsequent quarters until replacement tenants were secured.

That warning is now visible in the accounts. FY25 rental income had been very stable at Rs85.83 million versus Rs85.65 million in FY24. In contrast, the first nine months of FY26 produced only Rs36.15 million, and Q3 alone produced Rs7.34 million. This is a break from the previous rental run rate rather than ordinary quarter-to-quarter noise.

The cost base did not fall in line with rental income. Nine-month administrative and other expenses together rose 16.1% to Rs33.91 million even as rental income fell 43.8%. As a result, operating profit dropped much faster than revenue. Q3 expense control was better, but the economics remain highly sensitive to occupancy because the fixed property and administrative structure persists when a large tenant leaves.

Why Q3 PAT rose despite weaker operations

The key reconciliation sits below operating profit. Q3 profit before levies and income taxes fell 74.2% to Rs3.43 million. The statement then records a positive Rs15.52 million provision-for-levies amount, compared with a Rs0.37 million expense in Q3 FY25. This lifted profit before income tax to Rs18.95 million. Income tax was only Rs0.10 million, versus Rs3.57 million a year earlier, leaving PAT at Rs18.86 million.

The levy note says the provision is made under section 113C of the Income Tax Ordinance and shows a cumulative 9MFY26 levy expense of Rs4.25 million, including Rs1.64 million relating to a prior year. It does not explicitly explain the economic reason for the Rs15.52 million quarterly credit. That makes the safest classification an exceptional or non-recurring quarter-specific benefit until a later filing explains otherwise. It should not be extrapolated as part of KOIL’s normal earnings capacity.

The nine-month result makes that clear. Despite Q3’s strong reported PAT, nine-month PAT was only Rs14.54 million, down from Rs42.08 million. The core operating deterioration therefore dominates the cumulative picture.

Cash flow: earnings quality weakened

Cash conversion deteriorated sharply. Profit before income tax for 9MFY26 was Rs17.83 million, but after non-cash and other adjustments the company generated only Rs4.60 million before working-capital movements. Working capital then absorbed Rs11.84 million, turning cash generated from operations into a Rs7.25 million outflow. After Rs10.40 million of levies and taxes paid, net operating cash flow was negative Rs17.64 million, compared with a positive Rs18.08 million a year earlier.

KOIL protected its cash balance partly by monetizing short-term investments. It purchased Rs8.0 million of short-term investments but received Rs46.5 million from disposals, creating a net Rs38.5 million investing inflow. At the same time, it paid Rs22.13 million in dividends. Cash and bank balances therefore ended March at Rs16.41 million, only modestly below Rs17.69 million at June 2025, but that stability should not be confused with strong operating cash generation.

The balance sheet shows the same shift. Short-term investments fell 16.5% to Rs137.70 million. The business still has a substantial liquid-investment buffer, but operating cash flow needs to normalize if the vacancy persists; repeated asset sales would be a weaker source of cash than recurring rent.

Asset and funding concentration

Investment property stood unchanged at Rs923.30 million, representing roughly 80.6% of total assets. This concentration explains why one major tenancy can have such a large effect on earnings. KOIL’s commercial outcome is driven much more by occupancy, lease terms and the economics of its Faisalabad property than by the textile cycle implied by its exchange sector label.

Funding is unusual as well. The statement presents Rs353.68 million of loans from directors and other shareholders within the equity section. The related-party note identifies Rs151.16 million as borrowings from key management personnel and Rs202.53 million from a close relative of key management. These balances were unchanged from June 2025. This funding structure is consistent with the very low conventional finance cost, but it also means a material part of the company’s funding is related-party capital rather than independent bank financing.

Sector and peer context

A conventional textile comparison would be misleading because KOIL no longer manufactures yarn. A more relevant operating cross-check is Kohinoor Power Company, KOIL’s 22.5%-owned associate, which has also shifted its principal activity to leasing machinery and buildings. KOHP reported 9MFY26 rental income of Rs7.50 million, up 81.6% year on year, and said its higher profit was mainly due to increased rental income.

That peer evidence matters because it argues against treating KOIL’s rent decline as a uniform leasing-sector collapse. The assets and tenant bases differ, so it does not prove superior execution at KOHP, but it supports a narrower inference: KOIL’s earnings setback is heavily company- and property-specific, centered on the known tenant vacancy.

The broader macro picture is mixed rather than uniformly weak. SBP’s March 2026 Business Confidence Survey described a dip in confidence and a more subdued outlook. That provides some macro context for management’s reference to economic conditions, but linking the survey directly to this specific vacancy would be inference. At the same time, PBS reported Q2 FY26 GDP growth of 3.89%, with services growth of 3.69%. The macro data therefore provide context for caution, but they do not by themselves explain the scale of KOIL’s rental decline.

Historical pattern and earnings quality

FY25 had been a strong year for reported earnings: rental income was broadly flat year on year at Rs85.83 million, operating profit was Rs90.07 million and PAT was Rs75.41 million versus Rs38.72 million in FY24. Other income was also meaningful, including returns on deposits, dividends, investment gains and a fair-value gain on investment property.

FY26 is different. The rental base has broken lower, while other income remains material relative to rent. This makes the quality of future earnings especially dependent on two questions: whether the vacant property can be re-let and how much of non-rental income proves repeatable. The company’s FY25 briefing said management was evaluating other business propositions in addition to renting premises, but no quantified new earnings stream is disclosed in the Q3 report.

Recurring versus exceptional drivers

The recurring negative is the lost rent. Unless the vacant area is re-leased, the lower rental run rate can continue into subsequent periods. The administrative cost base and property concentration are also structural features. Conversely, the negligible finance cost and large short-term investment portfolio provide some financial cushioning.

The clearest exceptional item is the Rs15.52 million Q3 levy credit. The quarterly report does not provide enough explanation to treat it as recurring. Other income should also be handled cautiously: the FY25 annual report shows that this line can include investment income and fair-value movements, so it is not equivalent to contracted rental cash flow.

Other risks

The March report discloses Rs5.73 million of sales-tax and other liabilities under appeal, a land-related suit for which management expects no financial burden, and an SECP petition related to allegations of improper management that remains pending before the Lahore High Court. These matters do not explain the quarter’s earnings change, but they belong in the risk picture.

Separately, the current PSX company page displays a Risk Warning Alert stating that KOIL is in continuous violation under specified exchange clauses and carries risk of suspension or delisting. The exchange warning does not identify the underlying breach in the text displayed on the company page, so no further cause should be inferred from it.

What to monitor next

First, replacement tenancy. The most important operating metric is whether the space vacated by Beacon Impex is re-let and whether quarterly rental income moves materially above the roughly Rs7 million Q3 run rate.

Second, the levy line. A normal quarter without the Rs15.52 million credit would give a much cleaner view of underlying net profitability.

Third, operating cash flow. The swing to a Rs17.64 million outflow is more concerning than the Q3 PAT headline. Working-capital absorption and actual cash tax/levy payments should be watched closely.

Fourth, the short-term investment buffer. KOIL used investment disposals to support liquidity while paying dividends. The next cycle should show whether cash can stabilize through rent and operations rather than further portfolio liquidation.

Fifth, diversification and occupancy concentration. Management has previously said it is evaluating other business propositions. Until something concrete is announced, the company remains primarily a concentrated property-rental business.

Sixth, the PSX Risk Warning Alert and pending legal/regulatory matters. Any clarification or resolution could materially improve the transparency of the non-operating risk profile.

The result is therefore best read as an occupancy shock with an accounting offset. KOIL remains liquid and lightly burdened by conventional finance costs, but the recurring earnings engine weakened sharply after a major tenant exit. The next quarter will be more informative if it shows whether rental income can recover without relying on a levy credit or investment disposals.

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