Kohinoor Mills Limited (PSX: KML) finished FY2026 with only Rs5.5 million of audited profit after tax, down 97.6% from Rs233.5 million a year earlier. The headline is not simply weaker sales. A modest improvement in gross margin was overwhelmed by lower dyeing volumes, higher distribution and administrative costs, and a finance bill that absorbed 88% of reported operating profit. The balance sheet also became more working-capital intensive as inventory and short-term borrowing rose.
Verdict: the weaving division improved, energy investments and the new apparel operation create genuine options, and operating cash flow returned to positive territory. But FY2026 still ended with almost no earnings, negative free cash flow, a Rs2.22 billion working-capital deficit and a difficult fourth quarter. The immediate test is whether deferred dyeing shipments return without another inventory or borrowing build.
Results at a glance
The reporting basis is Kohinoor Mills Limited’s audited company financial statements for the year ended June 30, 2026, presented in Pakistani rupees. The independent auditor issued an unmodified opinion. There is no consolidated group statement in the report; the company reports four operating segments—Weaving, Dyeing, Power Generation and Apparel—within the same legal entity.
Revenue fell 5.7% to Rs25.60 billion from Rs27.14 billion. Gross profit declined a smaller 3.5% to Rs3.49 billion, lifting gross margin to 13.62% from 13.32%. Reported profit from operations fell 19.8% to Rs1.26 billion, while operating margin narrowed to 4.93% from 5.80%.
Finance cost eased 5.6% to Rs1.11 billion, but it remained almost as large as operating profit. Profit before levy and taxation dropped 62.1% to Rs150.2 million. A Rs324.9 million levy then produced a Rs174.7 million loss before taxation; a Rs180.2 million tax credit left final profit after tax at Rs5.5 million, or Re0.01 per share, versus Rs233.5 million and Re0.46 in FY2025. The board declared no dividend, saying it wanted to rebuild working capital and retain protection against policy uncertainty.
AlphaGen model readings for the period were: Alpha QoQ Score 0; TTM Performance Score 0; 3Y Business Perf Score 18.31; Sector Leadership Score 18.0259. These are AlphaGen model outputs, not figures reported by the company, and they should be read as analytical signals rather than accounting measures.
What improved
Gross margin resisted the sales decline
A 5.7% revenue contraction did not translate into the same degree of gross-profit erosion. Cost of sales fell 6.0%, slightly faster than revenue, and gross margin improved by 0.30 percentage points. Management attributes this to product mix, operating efficiency and cost control. That explanation is consistent with the segment data: weaving’s total segment sales slipped 2.3% to Rs17.77 billion, yet its gross profit rose 13.4% to Rs1.94 billion and gross margin expanded to 10.9% from 9.4%.
Weaving’s external sales rose 8.2% to Rs11.45 billion. The result suggests the division extracted more value from its existing asset base even though lower internal sales kept total segment revenue slightly lower. Management says no material capital expenditure was undertaken in weaving and that the focus remained on utilization, product and market mix, and productivity.
Energy diversification is moving from plan to operation
The company reported 10.2 MW of installed solar photovoltaic capacity in full operation and shifted a significant portion of process heat from natural gas to a biomass-fired thermal-oil system. These projects do not remove the FY2026 earnings pressure, but they should reduce exposure to grid tariffs, gas availability and fuel-price volatility. Power Generation gross profit rose to Rs227.1 million from Rs75.9 million, although intersegment accounting means this is not external revenue.
Kohinoor is also evaluating further solar capacity with battery storage. That remains an option rather than a committed earnings contribution, so the more useful near-term evidence will be energy cost per unit and whether the existing installations protect textile margins.
Operating cash flow turned positive
Net cash from operating activities improved to Rs114.6 million from a Rs34.3 million outflow. Cash generated from operations before finance costs, taxes and deposits was Rs1.74 billion, broadly stable year on year. Lower cash finance costs helped, but higher tax and levy payments and additional long-term deposits absorbed much of the benefit.
Cash and bank balances consequently rose to Rs1.01 billion from Rs815.7 million. The improvement is real, but modest beside the financing and investment requirements discussed below.
What weakened / needs attention
Dyeing drove the revenue and margin setback
Dyeing external sales fell 18.4% to Rs13.48 billion, while total segment sales declined to Rs14.51 billion from Rs16.83 billion. Gross profit dropped 30.3% to Rs1.29 billion and segment gross margin fell to 8.9% from 11.0%. That more than offset weaving’s improvement.
Management says the final quarter was especially difficult because Middle East geopolitical disruption affected shipping and order execution, deferring some export shipments and customer deliveries. This is a disclosed timing explanation for part of the weakness, not proof that all lost sales will automatically return. Order conversion and geographic diversification therefore matter more than a simple rebound assumption.
Overheads consumed the gross-margin gain
Distribution cost increased 7.6% to Rs1.42 billion even as sales declined. Administrative expenses climbed 30.4% to Rs1.02 billion. Together with other expenses, these costs rose to Rs2.52 billion from Rs2.23 billion, so the Rs128 million decline in gross profit became a Rs312 million fall in reported operating profit before finance costs.
The new Apparel division helps explain some of the cost build. It commenced commercial operations during FY2026, generated Rs663.5 million of external sales and Rs28.8 million of gross profit, but recorded a Rs106.2 million loss before unallocated items. Company headcount rose to 2,920 at June 30 from 2,149 a year earlier; the filing does not allocate that increase by division. After year-end, Apparel operated five lines with capacity of about 5,000 pieces per shift per day. It is strategically relevant, but not yet an earnings contributor.
The fourth quarter was materially loss-making
Kohinoor did not present a separate audited fourth-quarter income statement. Subtracting the official nine-month figures from the audited full-year totals gives an estimated Q4 revenue of Rs6.00 billion, gross profit of Rs557.2 million and gross margin of about 9.3%. The core operating subtotal before other income was a loss of roughly Rs91.0 million; Rs184.0 million of other income lifted reported operating profit to about Rs93.0 million.
Fourth-quarter finance cost was approximately Rs311.3 million, producing an estimated Rs215.7 million loss before levy and tax and an approximately Rs132.5 million loss after tax. These are reproducible period-difference calculations, not separately reported quarterly figures. They reinforce management’s disclosure that shipping and order execution were disrupted late in the year.
Finance cost still leaves little room for error
The Rs66.3 million reduction in finance cost was welcome, but Rs1.11 billion still consumed 88% of Rs1.26 billion in reported operating profit. On the more conservative subtotal before other income, the financing burden exceeded operating earnings. The company therefore remains highly sensitive to borrowing levels and interest rates even if monetary conditions improve.
The levy and tax presentation also needs care. Profit before levy and tax was positive, but the Rs324.9 million levy pushed the company into a pre-tax loss; a Rs180.2 million tax credit then restored a very small net profit. The Rs5.5 million bottom line is therefore not a clean measure of recurring operating strength.
Inventory and short-term borrowing rose together
Stock-in-trade increased 22.8% to Rs6.52 billion, while stores and spares rose to Rs1.15 billion. Total inventory of Rs7.67 billion represented 26.3% of assets and was identified by the auditor as a key audit matter because of its size and valuation judgment. Trade receivables declined to Rs3.54 billion from Rs4.10 billion, which partly offsets the concern, but the inventory build deserves direct monitoring after management disclosed shipment deferments.
Borrowings increased 20.3% to Rs11.43 billion. Short-term borrowing rose by Rs1.77 billion to Rs9.18 billion; cash was only Rs1.01 billion. Current assets of Rs14.46 billion were below current liabilities of Rs16.68 billion, widening the working-capital deficit to Rs2.22 billion from Rs648.6 million and reducing the current ratio to about 0.87 from 0.95.
This pressure is also visible in cash flow. Capital expenditure rose to Rs2.03 billion from Rs1.62 billion, and free cash flow after tax and capital expenditure deteriorated to negative Rs859.3 million from negative Rs294.4 million. Net financing inflow of Rs1.85 billion funded the investing gap and the increase in cash.
Longer-run context
FY2026 revenue was below the FY2024 peak of Rs29.85 billion and the FY2023 level of Rs28.21 billion. Gross margin, at 13.62%, stabilized after falling from 20.80% in FY2023 to 14.22% in FY2024 and 13.32% in FY2025. Net profit, however, moved from Rs2.00 billion in FY2023 to a Rs19.6 million loss in FY2024, Rs233.5 million profit in FY2025 and just Rs5.5 million in FY2026.
That history makes the central issue clear: gross-margin stability alone is insufficient while overheads, financing and levies absorb nearly all operating value. The company is investing to move further into garments and lower-cost energy, but those initiatives must translate into higher asset utilization and cash earnings rather than another borrowing-led expansion cycle.
What to monitor next
First, watch dyeing volumes, gross margin and the conversion of deferred exports. A recovery should appear in external dyeing sales and inventory normalization, not only management commentary.
Second, track the Apparel division’s path from ramp-up losses to positive contribution. Five operating lines create capacity, but utilization, order quality and overhead absorption will decide whether vertical integration improves group economics.
Third, compare operating cash flow with capital expenditure and short-term borrowing. A healthier recovery would fund more investment internally, narrow the working-capital deficit and reduce the share of operating profit consumed by finance cost.
Finally, monitor whether the solar and biomass investments produce durable savings and whether further battery or solar spending is paced against balance-sheet capacity. The opportunity is credible; financial discipline will determine its value.
Sources and calculation notes
Primary source: Kohinoor Mills Limited Annual Report 2026 (audited financial statements and directors’ report).
Official announcement: Pakistan Stock Exchange FY2026 financial-results transmission dated September 28, 2026.
Announcement chronology and company profile: Pakistan Stock Exchange KML page.
Percentages and the fourth-quarter estimates are calculated from the issuer’s reported rupee figures. Figures are rounded, so totals may not add precisely. The fourth-quarter estimates equal audited FY2026 totals minus the official nine-month results for the period ended March 31, 2026.