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Kohinoor Mills Q3 FY26: Better Margins Meet a Heavier Funding Load

Kohinoor Mills’ Q3 FY26 gross margin improved despite flat sales, but higher overheads, negative operating cash flow and rising debt kept the recovery incomplete.

Sep 23, 2026

Verdict

Kohinoor Mills Limited’s Q3 FY26 result shows a real improvement in manufacturing gross economics, but not yet in bottom-line quality or cash conversion. For the quarter ended March 31, 2026, revenue was almost flat year on year at Rs6.52 billion, while gross profit rose 16.1% to Rs978.9 million and gross margin improved to 15.0% from 12.8%. That is the strongest part of the result: cost of sales fell faster than revenue even though management continued to flag elevated raw-material, conversion and utility costs.

The improvement did not carry cleanly to earnings. Distribution and administrative expenses rose sharply, other income fell, finance cost was slightly higher in the quarter, and profit after tax declined 55.9% to Rs12.8 million from Rs29.1 million. On a nine-month basis, revenue fell 7.1% to Rs19.59 billion while gross profit still increased 3.1% to Rs2.93 billion. Finance cost fell 14.0%, but operating profit declined 12.0% and nine-month profit after tax fell 25.6% to Rs149.2 million.

The balance sheet is the larger constraint. Stock-in-trade and stores increased, operating cash outflow widened to Rs555.5 million, capital expenditure accelerated, and both short- and long-term financing increased. The company is investing in solar, biomass-based heat and a new apparel operation, which could improve the cost base and product mix over time, but the next result must show that these investments begin to translate into better cash conversion rather than simply a larger funding requirement.

Company and reporting basis

Company Name: Kohinoor Mills Limited

Ticker: KML

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

Reporting basis: company-level/unconsolidated condensed interim financial statements, presented in Pakistani rupees and marked unaudited. The statements are prepared under the interim financial-reporting standards applicable in Pakistan, including IAS 34. The comparative income-statement periods are the quarter and nine months ended March 31, 2025; balance-sheet comparatives are audited June 30, 2025 figures.

AlphaGen model outputs

Alpha QoQ Score: 10.21

TTM Performance Score: 57.09

3Y Business Perf Score: 23.66

Sector Leadership Score: 47.3484

These four scores are AlphaGen model outputs and are not figures reported by Kohinoor Mills.

Results at a glance

  • Q3 revenue: Rs6.52 billion, down 0.8% year on year.
  • Q3 gross profit: Rs978.9 million, up 16.1%; gross margin improved to 15.0% from 12.8%.
  • Q3 operating profit: Rs359.0 million, broadly flat, up about 0.7%.
  • Q3 profit after tax: Rs12.8 million, down 55.9%.
  • 9MFY26 revenue: Rs19.59 billion, down 7.1%; gross profit: Rs2.93 billion, up 3.1%.
  • 9MFY26 finance cost: Rs801.4 million, down 14.0%; profit after tax: Rs149.2 million, down 25.6%.
  • 9MFY26 operating cash flow: negative Rs555.5 million versus negative Rs375.8 million a year earlier.
  • At March 31, stock-in-trade was Rs5.85 billion, short-term borrowings Rs8.45 billion, and cash Rs441.6 million.

What improved

Gross margin recovered despite flat quarterly sales

The most important operating improvement was the relationship between sales and manufacturing cost. Q3 revenue declined only 0.8%, but cost of sales fell 3.3%, lifting gross profit by 16.1%. For the nine months, revenue fell 7.1% while cost of sales fell 8.7%, allowing gross margin to rise to 15.0% from 13.5%. This is economically more meaningful than the bottom-line decline because it indicates that manufacturing and mix economics improved before overhead, financing and taxes.

The cost note shows why the story is not simply lower input prices. In Q3, raw-material consumption fell about 4.0% and fuel, oil and power fell about 7.4%, but wages increased strongly, chemical consumption rose, conversion and processing charges nearly doubled, and depreciation increased. Management attributes the nine-month pressure to raw-material and conversion-cost inflation and higher utility tariffs following the withdrawal of the export-oriented energy concession, while also highlighting efficiency initiatives. The margin improvement therefore appears to reflect a combination of cost discipline, mix and operating changes rather than one favorable input alone.

Weaving strengthened and domestic exposure increased

The nine-month segment split shows a clear divergence. External weaving revenue increased 10.0% to Rs8.55 billion and weaving gross profit rose 12.7% to Rs1.49 billion. Management says the division increased its focus on the domestic market to support volumes and capture relatively stronger margins. That shift is visible in the geography data: total Pakistan revenue increased 9.2% to Rs10.19 billion, while Asia revenue fell 30.1% and Europe revenue declined 9.8%. North America grew from a smaller base.

Dyeing was weaker. External dyeing revenue fell 20.2% to Rs10.61 billion and segment gross profit declined 11.3% to Rs1.36 billion. Management cites weaker contribution margins, higher utilities and raw-material pressure, and more competitive pricing. The contrast matters: company-wide gross margin improved, but the improvement was not broad-based across every core textile activity.

Export-finance relief provides a partial offset

Financing conditions improved during the period. State Bank of Pakistan data show the end-user Export Finance Scheme rate was reduced by three percentage points to 4.5% effective February 11, 2026. KML’s nine-month finance cost fell 14.0% year on year to Rs801.4 million. It would be too strong to attribute the full decline to the EFS change—the company uses multiple financing sources and the rate reduction applied only during part of the period—but the policy move is directionally supportive for an exporter carrying meaningful working-capital financing.

What weakened / needs attention

The quarterly bottom line did not follow gross profit

Q3 gross profit improved by Rs135.5 million, yet profit after tax fell by Rs16.3 million. Distribution expense rose 26.5% and administrative expense rose 21.9%, absorbing much of the gross-profit gain. Other income fell 40.9% to Rs20.7 million and finance cost increased slightly to Rs270.3 million. Profit before levy and taxation consequently slipped 2.5% to Rs88.7 million.

The tax and levy presentation also needs careful reading. The company recorded an Rs81.7 million levy in Q3, leaving profit before taxation of only Rs7.0 million, followed by an Rs5.8 million taxation credit, producing Rs12.8 million profit after tax. In the comparable quarter the taxation credit was much larger at Rs22.6 million. The year-on-year PAT decline therefore overstates the deterioration in pre-tax operations, but it also shows why headline profit is currently sensitive to below-operating-line items.

Working capital consumed more cash

Cash conversion deteriorated. Cash generated from operations before tax, finance cost and selected long-term movements fell 46.6% to Rs622.5 million. After tax and levy payments, finance cost paid and higher long-term security deposits, net cash used in operating activities widened to Rs555.5 million from Rs375.8 million.

The working-capital bridge explains the strain. Stock-in-trade absorbed Rs537.4 million and stores, spares and loose tools absorbed Rs370.0 million during the nine months. Trade receivables released Rs346.9 million, which helped, but trade and other payables also declined and therefore consumed cash. At March 31, stock-in-trade stood 10.1% above June 2025 and stores were 37.1% higher, while trade debts were 8.3% lower. This is a mixed picture: collections improved, but inventory and operating stores tied up substantially more cash.

Debt rose as investment accelerated

KML spent Rs1.46 billion on property, plant and equipment during the nine months, more than three times the comparable period. The fixed-asset note shows Rs1.80 billion of additions to operating fixed assets, dominated by plant and machinery. This fits the company’s disclosed investment program: solar capacity, process-heat conversion and apparel expansion.

Those investments are being funded while free cash flow is negative. Short-term borrowings rose 14.0% from June 2025 to Rs8.45 billion, while long-term secured financing rose 21.4% to Rs1.99 billion. Cash fell to Rs441.6 million from Rs815.7 million. Current assets of Rs13.23 billion were below current liabilities of Rs14.61 billion, a current ratio of roughly 0.91 versus about 0.95 at June 2025. That does not by itself imply distress, but it makes working-capital discipline and financing cost central to the next-cycle analysis.

New capacity: strategically sensible, financially demanding

The company is trying to change its cost structure and product mix at the same time. A solar PV plant under a 7.2 MW renewable-energy program was commissioned in November 2025 and management says on-site solar is meeting more than 20% of operational electricity requirements. An additional 3.0 MW solar capacity was under implementation at March 31 and was completed after the reporting date. A biomass-fired thermal-oil heater was commissioned in September 2025 to reduce exposure to gas pricing and supply risk.

These initiatives are economically relevant because energy remains a major competitiveness issue for Pakistan’s textile industry. The government has confirmed that concessionary energy tariffs for the five export-oriented sectors were withdrawn, while also introducing broader industrial relief mechanisms, including an incremental electricity package. KML’s own disclosures still identify utility tariffs as a margin pressure. The investment case for captive renewable and alternative heat therefore rests on recurring cost avoidance, not merely sustainability positioning.

The other strategic leg is apparel. Commercial operations began in December 2025 with initial capacity of 5,000 pieces per shift per day. Nine-month external apparel revenue reached Rs438.9 million from only Rs20.0 million in the comparable period, but the segment remained gross-loss-making at Rs54.8 million. The ramp-up is therefore real but not yet economically proven. A key next step is whether utilization and learning effects can move apparel from revenue growth to positive segment contribution.

Sector and peer context

The external backdrop was not strong enough to explain KML’s performance through a simple sector-wide boom. Pakistan Bureau of Statistics reported total merchandise exports down 14.0% year on year in US-dollar terms in March 2026. Among major textile categories that month, cotton-cloth export value in rupee terms was down 1.7% year on year, readymade garments 6.5% lower and knitwear 14.5% lower. This supports management’s description of soft and uneven external demand.

A useful peer cross-check is Nishat (Chunian) Limited, another integrated textile producer. Its official 9MFY26 report showed sales down 3.6% while gross margin improved to 12.05% from 10.35%, which management linked to sourcing and better sales margins, especially in weaving and home textiles. That does not prove the same drivers at KML, but it shows that improving gross margins alongside softer sales was not unique to one company. KML’s stronger weaving result and weaker dyeing result still point to company-specific mix and execution within the broader industry conditions.

Recurring versus non-recurring

The gross-margin improvement, weaving mix shift, lower financing burden, renewable-energy savings and apparel ramp-up are the items with the strongest potential to recur, although each still needs confirmation in future periods. The investment program is intended to alter recurring energy and product economics rather than generate a one-quarter accounting benefit.

By contrast, some below-line items should not be treated as core earnings drivers. Other income was only Rs20.7 million in Q3 and included smaller financial and disposal-related components across the nine months. The nine-month cash-flow reconciliation separately identifies gains on asset disposals, mutual funds and fair-value remeasurement. These items matter for reported profit but are not a substitute for manufacturing margins and cash generation. The taxation credit in Q3 also boosted PAT after the levy and should not be extrapolated mechanically.

What changed versus the historical pattern

The latest period shows a business attempting to recover gross profitability without yet achieving equally strong earnings or cash conversion. Compared with the same nine months last year, KML generated less revenue but more gross profit, paid less finance cost, and shifted more sales toward weaving and the domestic market. At the same time, operating expenses grew, dyeing weakened, inventories absorbed cash and debt increased. The result is a better manufacturing spread sitting on a more demanding funding structure.

That combination explains why the quarter should not be read either as a clean deterioration or as a completed turnaround. The operating base improved in important areas, but the financial benefits were diluted before reaching shareholders and were not converted into operating cash.

What to monitor next

  • Gross-margin durability: whether the 15% gross margin can hold as utility, wage, chemical and raw-material costs move.
  • Dyeing recovery: whether external dyeing revenue and contribution margins stabilize after the nine-month decline.
  • Apparel economics: whether the new unit moves from rapid revenue ramp-up toward positive gross contribution.
  • Energy savings: evidence that the completed additional solar capacity and biomass heat system reduce recurring energy cost per unit.
  • Working capital: especially stock-in-trade and stores, which were the largest cash absorbers during 9MFY26.
  • Borrowings and finance cost: whether higher debt begins to unwind and whether the lower EFS rate translates into a more visible funding-cost benefit.
  • Geographic mix: whether domestic growth and North American gains can offset softer Asian and European demand without sacrificing pricing.
  • Cash conversion: whether operating cash flow turns positive as the current investment cycle matures.

Bottom line

Kohinoor Mills ended Q3 FY26 with better gross margins but weaker headline profit and a heavier funding requirement. Weaving and the domestic mix improved, finance cost fell over nine months, and energy/apparel investments create identifiable routes to better economics. Against that, dyeing remains under pressure, operating expenses are rising, inventory has absorbed cash and debt has increased materially.

The next result is therefore less about whether KML can report another accounting profit and more about whether the gross-margin recovery becomes self-funding. A stronger quarter would combine stable manufacturing margins with improving dyeing, a narrower apparel loss, lower inventory intensity and positive operating cash flow. Until those pieces move together, the result remains an operational improvement with an unresolved cash-conversion test.

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