Verdict
Khalid Siraj Textile Mills Limited (KSTM) reported a PKR 19.57 million profit for the audited standalone year ended 30 June 2026, reversing a PKR 19.32 million loss in FY2025. That headline is not evidence of an operating turnaround. The mill remained closed, turnover was nil, and the entire pre-tax profit depended on a PKR 45.15 million liability write-back. Excluding that item, the company would have reported a PKR 33.33 million pre-tax loss.
The result also carries an unusually severe assurance warning. Although the statements are labelled audited, Sheikh & Chaudhri issued a disclaimer of opinion because accounting records and supporting evidence were unavailable. The auditor specifically said it could not verify the liability write-back, borrowings, sponsor financing, property revaluation, tax credit, several asset balances, or the appropriateness of the going-concern basis. Readers should therefore treat every reported number as management’s financial statement figure without audit assurance.
The most defensible reading is that FY2026 improved reported earnings and accounting equity, but not the underlying business. KSTM generated no manufacturing revenue, produced only PKR 49,431 of operating cash, retained a PKR 141.71 million working-capital deficit, and remained dependent on sponsor support. The next meaningful milestone is actual commercial production or recurring rental/toll-manufacturing income—not another non-cash accounting gain.
Results at a glance
- Reporting basis: audited standalone annual financial statements for the year ended 30 June 2026; figures below are in Pakistani rupees.
- Turnover: nil, unchanged from FY2025, because manufacturing operations remained suspended.
- Other operating income: PKR 45.15 million, entirely from liabilities written back; FY2025 had no comparable income.
- Profit before tax: PKR 11.82 million versus a PKR 24.59 million loss in FY2025.
- Profit after tax: PKR 19.57 million versus a PKR 19.32 million loss; EPS was PKR 1.83 versus loss per share of PKR 1.81.
- Dividend: nil. The board recommended no cash dividend, bonus issue, rights issue, or other entitlement.
- Operating cash flow: PKR 49,431 versus an outflow of PKR 3.87 million in FY2025.
- Cash and bank balances: PKR 65,894 at year-end; total borrowings remained PKR 222.08 million.
- Current assets/current liabilities: PKR 3.65 million/PKR 145.36 million, leaving a PKR 141.71 million net current liability position.
AlphaGen model scores
These are AlphaGen model outputs, not figures reported by KSTM or its auditor. A missing value means the model did not return a score; it is not a zero.
- Alpha QoQ Score: Not available
- TTM Performance Score: Not available
- 3Y Business Perf Score: Not available
- Sector Leadership Score: 92.50
Why reported profit improved
The profit bridge is straightforward. KSTM booked PKR 45.15 million of other operating income, then absorbed PKR 2.85 million of administrative expenses, PKR 30.36 million of other operating expenses, and PKR 0.11 million of finance costs. This produced reported pre-tax profit of PKR 11.82 million. A PKR 7.74 million tax credit lifted profit after tax to PKR 19.57 million.
The PKR 38.89 million year-on-year swing in net income therefore came from accounting items rather than sales, volumes, pricing, product mix, or factory utilisation. There was no turnover and no gross profit to analyse. Other operating expenses rose 42.9% to PKR 30.36 million, primarily because depreciation increased to PKR 29.49 million from PKR 21.25 million. Administrative expenses fell 12.7% to PKR 2.85 million.
The core arithmetic is more revealing than the statutory bottom line: PKR 11.82 million reported pre-tax profit minus PKR 45.15 million of write-back income equals a PKR 33.33 million pre-tax loss before that non-recurring item. That adjusted figure is not a company-defined metric, but it cleanly shows that recurring costs still exceeded recurring income.
The tax line is also non-cash and positive: KSTM reported a PKR 7.74 million tax credit rather than an expense. The auditor said tax records were unavailable and it could not determine the income-tax liability or tax charge. This means even the step from pre-tax profit to reported net profit lacks audit assurance.
The critical audit limitation
The independent auditor did not issue a clean, qualified, or adverse opinion; it disclaimed an opinion altogether. The stated reason was that KSTM has been dormant since November 2013 and lacked competent staff and records needed for the audit. That is a fundamental limitation, not a narrow disagreement over one estimate.
Most importantly for FY2026 earnings, the auditor said it received no evidence that PKR 45.15 million of securities payable and customer advances had been legally released. It therefore could not determine whether the write-back, the profit for the year, or related statutory funds were correctly stated. Because the write-back is larger than reported pre-tax profit, this uncertainty directly affects the headline result and cannot be relegated to a footnote.
The disclaimer also covers PKR 68.18 million of short-term borrowings, PKR 16.79 million of accrued mark-up, PKR 153.90 million of long-term sponsor financing, PKR 36.08 million of trade and other payables, and PKR 454.17 million of property, plant and equipment. The auditor could not verify the revaluation report, fixed-asset register, additions made in prior years, or the existence, ownership, valuation, and condition of those assets.
This evidence gap shapes the article’s limitations. The reported figures can be reproduced from the PSX filing, but they should not be interpreted as independently substantiated balances. Any conclusion about solvency, asset backing, debt terms, or sustainable profitability must remain cautious until records and audit evidence improve.
What improved
Reported equity moved from negative PKR 77.24 million to positive PKR 77.60 million. However, PKR 135.28 million of the PKR 154.85 million total comprehensive income came from net revaluation surplus on land, buildings, plant, and machinery—not retained cash earnings. Property, plant and equipment rose by PKR 161.05 million to PKR 454.17 million, while related deferred liabilities increased by PKR 47.51 million.
The working-capital deficit narrowed from PKR 183.02 million to PKR 141.71 million. This was almost entirely because current liabilities fell by PKR 41.26 million, while current assets increased only PKR 0.05 million. Trade and other payables dropped to PKR 36.08 million from PKR 77.34 million, consistent with the balance-sheet effect of the liability write-back.
Operating cash flow improved from a PKR 3.87 million outflow to PKR 49,431 of inflow. That improvement is real in cash terms but immaterial in scale: year-end cash was only PKR 65,894 against PKR 145.36 million of current liabilities and PKR 222.08 million of total borrowings. There were no investing cash flows and no financing inflows during FY2026.
What weakened or needs attention
The mill has not produced revenue since operations ceased in November 2013. That makes conventional textile measures—spindle utilisation, yarn volumes, realised prices, energy cost per unit, export mix, and gross margin—unavailable and economically irrelevant for FY2026. The absence of these measures is itself the central operating fact.
Liquidity remains extremely tight. Current assets covered only about 2.5% of current liabilities at year-end, and cash covered less than 0.1%. Short-term borrowings and accrued mark-up were unchanged, and the auditor noted that they remained unpaid and under litigation. No mark-up was accrued for the current year, another area the auditor could not verify.
Going concern remains dependent on sponsor financing. Management says it is seeking funds from financial institutions and has taken steps toward restarting operations, but also acknowledges those financing efforts had not materialised by the reporting date. The auditor said there was no documented plan or evidence sufficient to support management’s assessment and highlighted that the accounts did not disclose a material uncertainty.
Governance and record-keeping are material risks. The auditor said required policies and disclosures were missing or inadequate and issued a separate disclaimer on the company’s statement of compliance with corporate-governance regulations. Until the company can produce complete accounting records and obtain a substantive audit opinion, reported improvements will remain difficult to rely on.
What to monitor next
- First, look for evidence of actual commercial activity: production restart dates, toll-manufacturing contracts, rental agreements, turnover, gross profit, and cash receipts. Management says it is considering toll manufacturing and renting the premises to cover fixed costs, but the annual report provides no executed agreement or quantified revenue target.
- Second, watch whether sponsor support or external working-capital financing is formally documented. A restart without funding for raw materials, power, labour, and maintenance would not resolve the current-liability gap.
- Third, focus on the next auditor’s report. Verification of the liability release, borrowings, sponsor financing, fixed assets, revaluation, taxes, and contingencies would matter more than another headline accounting profit.
- Fourth, track cash rather than accounting equity. Positive equity now depends heavily on asset revaluation, while cash remains negligible and the mill still has no recurring operating inflow.
- Finally, treat management’s comments on electricity tariffs, interest rates, and government support as conditions it believes are needed for revival—not as established explanations for FY2026 earnings. The FY2026 profit came from the write-back and tax credit, not a change in textile economics.
Bottom line
KSTM’s FY2026 filing shows a reported return to profit, but the quality of that profit is weak. With zero turnover, a dormant plant, a one-off liability write-back larger than pre-tax profit, a tax credit, negligible operating cash generation, and an auditor disclaimer, the result does not demonstrate business recovery. The genuine positive is that the reported working-capital deficit narrowed and accounting equity turned positive; both improvements, however, depend on entries the auditor could not substantiate. A defensible improvement thesis begins only when KSTM records recurring revenue and cash flow under financial statements that receive meaningful audit assurance.
Primary sources
Pakistan Stock Exchange company page and announcement record: KSTM on PSX
Issuer filing transmitted through PSX on 7 October 2026: KSTM Annual Report 2026
Board-approved result notice filed through PSX on 5 October 2026: KSTM Financial Results FY2026
All calculations are derived from the company’s published standalone financial statements. Percentages may differ slightly because of rounding. This analysis is informational and is not investment advice.