AlphaGen
Access AlphaGen
Company Narratives

Leiner Pak Gelatine Q3 FY26: Gross Margin Recovers, but Tax and Working Capital Constrain Profit

Leiner Pak Gelatine’s Q3 gross margin improved sharply, but nine-month profit stayed weak as high production costs, taxation and working-capital demands persisted.

Sep 23, 2026

Verdict

Leiner Pak Gelatine Limited’s Q3 FY26 result is better at the gross-profit and pre-tax levels than the headline profit-after-tax figure suggests. For the quarter ended March 31, 2026, sales slipped 4.4% year on year to Rs375.24 million, but gross profit rose 18.8% to Rs66.45 million and gross margin expanded to 17.7% from 14.3%. Operating profit increased 4.3% and finance cost fell 32.9%, helping profit before tax rise to Rs9.73 million from Rs3.47 million. Yet profit after tax declined 24.7% to Rs1.27 million because the quarterly tax charge rose sharply to Rs8.46 million.

The nine-month picture is less encouraging. 9MFY26 sales were almost flat at Rs1.036 billion, up only 0.7%, while gross profit fell 13.4%, operating profit fell 21.2% and profit after tax dropped 56.5% to Rs5.12 million. Management says the modest top-line growth was primarily export-led, but both export and domestic business remained sluggish. Overseas customers were managing inventories cautiously amid a changing global backdrop, domestic pricing was subdued, and production costs remained high.

Cash conversion improved materially but did not turn positive. Net cash used in operating activities narrowed to Rs2.23 million from Rs57.21 million, helped by a large increase in trade and other payables. At the same time, stock-in-trade, advances and short-term borrowing all increased. The core question for the next result is therefore not simply whether sales grow, but whether Leiner can convert the Q3 gross-margin recovery into stronger nine-month profitability and cash generation without leaning further on suppliers and short-term funding.

Results at a glance

  • Company: Leiner Pak Gelatine Limited
  • Ticker: LPGL
  • Reporting period: quarter and nine months ended March 31, 2026
  • Basis: company-level condensed interim financial statements, unaudited and prepared under IAS 34; June 30, 2025 statement-of-financial-position comparative is audited
  • Q3 sales: Rs375.24 million, down 4.4% year on year
  • Q3 gross profit: Rs66.45 million, up 18.8%; gross margin 17.7% versus 14.3%
  • Q3 profit before tax: Rs9.73 million, up 180.5%
  • Q3 profit after tax: Rs1.27 million, down 24.7%; EPS Rs0.17 versus Rs0.23
  • 9MFY26 sales: Rs1.036 billion, up 0.7%
  • 9MFY26 gross profit: Rs166.71 million, down 13.4%; gross margin 16.1% versus 18.7%
  • 9MFY26 operating profit: Rs56.20 million, down 21.2%
  • 9MFY26 profit after tax: Rs5.12 million, down 56.5%
  • 9MFY26 net cash used in operating activities: Rs2.23 million versus Rs57.21 million
  • Short-term borrowings: Rs456.49 million versus Rs415.17 million at June 2025
  • Dividend / entitlement: none announced with the Q3 result

What improved

The clearest positive is Q3 gross economics. Cost of sales fell 8.2% year on year while sales fell only 4.4%, allowing gross profit to rise 18.8%. The result was a 3.46 percentage-point improvement in gross margin to 17.7%. The filing does not disclose quarterly volumes, product mix or export-versus-local sales, so it would be speculative to assign the margin recovery to any one factor such as pricing, utilization or mix. What can be said is that the company retained more gross profit from each rupee of Q3 revenue than it did a year earlier.

Pre-tax earnings also improved. Distribution cost fell 7.6% and finance cost declined 32.9% to Rs10.65 million. Administrative expense rose 51.0% to Rs31.67 million, but the gross-profit gain and lower finance cost were strong enough to lift quarterly profit before tax by 180.5% to Rs9.73 million. This is important because it shows the quarter was not operationally weaker across the board even though reported profit after tax declined.

Cash flow improved as well. For the nine months, cash generated from operations before finance cost and taxes was Rs75.81 million versus Rs59.66 million a year earlier. After finance cost, taxes and statutory payments, net operating cash flow was still a Rs2.23 million outflow, but that was a substantial improvement from the Rs57.21 million outflow in 9MFY25.

What weakened / needs attention

The nine-month gross-profit trend remains the main weakness. Sales increased just 0.7% to Rs1.036 billion, but cost of sales rose about 4.0% to Rs869.04 million. Gross profit consequently fell 13.4% to Rs166.71 million and gross margin compressed to 16.1% from 18.7%. Management directly states that production costs remained significantly high. The Q3 margin rebound therefore needs to persist before it can be called a durable reversal of the nine-month pressure.

Administrative expense increased 12.9% over nine months to Rs83.08 million, while other income fell to an immaterial Rs0.02 million from Rs6.81 million. Distribution cost did fall sharply and finance cost declined 34.2%, but these savings were not enough to offset the weaker gross-profit base. Nine-month operating profit fell 21.2% to Rs56.20 million.

Taxation is another major earnings-quality issue. Nine-month profit before tax declined only 10.4% to Rs18.07 million, but the tax charge increased 54.4% to Rs12.95 million, leaving profit after tax down 56.5% at Rs5.12 million. The tax note says current taxation is provided under the minimum-tax regime in Section 113 and Section 154 for export income under the fixed-tax regime, alongside normal corporate tax rules. That means the tax burden should not automatically be dismissed as a one-off: when accounting margins are thin, minimum or fixed taxation can absorb a large share of pre-tax earnings.

The Q3 pattern illustrates the same issue even more starkly. Profit before tax rose from Rs3.47 million to Rs9.73 million, but the quarterly tax charge increased from Rs1.78 million to Rs8.46 million. Profit after tax therefore fell despite the stronger pre-tax result. The filing does not break the quarterly tax charge into minimum, fixed and deferred components, so the exact driver of the Q3 jump should not be inferred beyond the tax framework disclosed in the notes.

Working capital and liquidity

The balance sheet expanded materially between June 2025 and March 2026. Current assets rose 30.3% to Rs1.58 billion, but current liabilities grew faster, up 35.3% to Rs1.45 billion. The current ratio therefore eased to roughly 1.09 times from 1.13 times. Cash and bank balances more than doubled to Rs23.19 million, yet cash remains small relative to the overall working-capital base.

Stock-in-trade increased 26.0% to Rs1.142 billion and advances rose almost fourfold to Rs245.87 million. Those two movements consumed cash during the nine months: the cash-flow statement shows Rs235.35 million absorbed by inventory and Rs183.48 million by advances. Trade debts, however, fell 62.2% to Rs52.50 million, which released Rs86.48 million of cash.

The largest offset came from supplier and other credit. Trade and other payables rose 52.0% from June to Rs977.17 million, and the cash-flow statement shows a Rs332.30 million working-capital inflow from that line. In economic terms, improved operating cash flow was therefore helped substantially by higher payables rather than by a broad release of working capital. That is not inherently problematic, but it makes the composition of cash conversion important to monitor.

Short-term borrowings also rose 10.0% to Rs456.49 million. The notes show Rs72.71 million of that amount was financing from directors, an ex-director or shareholders, up from Rs56.02 million at June 2025. The company also uses export packing-credit and running-finance facilities priced off KIBOR. This makes both borrowing levels and benchmark rates relevant to the next-cycle finance-cost outlook.

Demand, exports and the historical pattern

Leiner’s current result sits against a difficult recent history. In FY2025, net sales fell 51.3% to Rs1.63 billion from Rs3.34 billion and profit after tax fell 80.6% to Rs15.82 million. The company’s 2025 corporate briefing shows export sales fell to Rs928.31 million from Rs2.29 billion, while local sales declined to Rs700.30 million from Rs1.05 billion. Export weakness was therefore the larger part of the FY2025 contraction.

The 9MFY26 top line has stabilized rather than fully recovered. Management says sales of Rs1.035 billion versus Rs1.028 billion a year earlier were primarily supported by exports, but it also says cautious inventory management by overseas buyers continued to restrain export business. Domestically, management cites rising consumer-price levels as contributing to subdued pricing. Pakistan Bureau of Statistics reported national CPI inflation of 7.3% year on year in March 2026 and 5.67% on average for July–March FY26, which supports the existence of the inflation backdrop management describes, although it does not prove a specific demand effect for Leiner.

Management’s November 2025 corporate briefing projected FY2026 sales of Rs2.10 billion, split between Rs1.25 billion of exports and Rs850 million of local sales. With Rs1.036 billion recorded in the first nine months, roughly Rs1.064 billion would have been required in Q4 to reach that projection—about 2.8 times Q3 sales. The briefing projection should be treated as an earlier management plan rather than updated guidance, but it provides a useful benchmark for judging the pace of recovery when the full-year result is published.

Recurring versus exceptional drivers

The recurring positive signal is the Q3 improvement in gross margin and the reduction in finance cost. If the better gross economics persist, they can materially improve earnings because Leiner’s current net margin is extremely thin. The recurring challenge is that production costs remain high and administrative expense has risen, leaving the nine-month operating margin below the comparable period.

There is little support from other income in the current nine months: only about Rs0.02 million was reported versus Rs6.81 million a year earlier. That makes the current result less dependent on non-operating income, but it also removes a cushion that helped the prior comparable period. The more important structural drag is taxation under minimum and export fixed-tax provisions; given the company’s thin profitability, this can remain material even when pre-tax profit improves.

Working-capital financing is also recurring rather than exceptional. Inventory and advances have risen, supplier balances have expanded and short-term borrowing remains material. The next result should be judged on whether these balances normalize as sales convert into cash, not simply on whether the closing cash figure is higher.

Sector and macro context

Leiner is a specialist producer of gelatine and di-calcium phosphate from animal bones and hides, serving both local and export markets. A scan of listed chemical companies does not identify a close like-for-like listed peer with the same product and export structure, so a broad chemical-sector margin comparison would create more noise than insight. The company’s own operating disclosures are the more relevant evidence for this quarter.

The external environment nevertheless matters. On March 9, 2026, the State Bank of Pakistan kept the policy rate at 10.5% but warned that the Middle East conflict had raised global fuel, freight and insurance costs and increased uncertainty around cross-border trade. This is directionally relevant for an exporter and manufacturer, but it should be treated as context rather than a proven explanation for Leiner’s reported costs.

After the reporting date, the SBP raised the policy rate by 100 basis points to 11.5% effective April 28, citing persistent energy, freight, insurance and supply-chain pressures. Because Leiner’s disclosed banking facilities are linked to KIBOR, a sustained higher-rate environment could slow or reverse the recent finance-cost relief. The actual effect will depend on facility utilization and benchmark-rate transmission in the next quarter.

What to monitor next

  • Whether the Q3 gross margin of 17.7% can be sustained and lift the full-year gross margin after nine-month compression.
  • Whether export-led sales accelerate enough to move meaningfully closer to the company’s earlier FY2026 sales projection.
  • Inventory, advances and trade payables. Better cash conversion would ideally come from lower working-capital intensity rather than a further build in supplier credit.
  • Short-term borrowings and finance cost, especially after the post-period increase in the policy rate and with facilities linked to KIBOR.
  • The effective tax burden. Stronger pre-tax earnings will matter less to shareholders if minimum and fixed taxes continue to absorb most of the improvement.
  • Whether operating cash flow turns positive on a sustainable basis and whether the higher closing cash balance is maintained without additional short-term funding.
  • No dividend or other entitlement was announced with the Q3 result; near-term analytical focus remains on recovery in earnings quality and cash conversion.

AlphaGen model outputs

  • Alpha QoQ Score: 14.06
  • TTM Performance Score: 2.48
  • 3Y Business Perf Score: 16.8
  • Sector Leadership Score: 33.0507

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

Sources

Explore more research

All articles