Mahmood Textile Mills Limited (PSX: MEHT) closed the year ended June 30, 2026 with a much larger group, but not an easier earnings model. Consolidated sales rose 22.2% to PKR 69.73 billion and net profit increased 8.0% to PKR 1.056 billion. Growth came from spinning and apparel, while weaving contracted. Yet gross margin narrowed, finance cost still consumed more than two-thirds of operating profit, and the final-tax levy absorbed almost half of profit before levy and tax. The result is better in scale and cash generation, but still financially tight.
The cleanest reading is consolidated because the apparel undertaking was transferred into wholly owned MG Apparel Limited under a court-approved scheme effective January 1, 2025. The audited FY2025 comparatives were restated. Standalone MEHT therefore tells only part of the economic story; it posted higher sales but lower gross and net profit.
Results at a glance
Consolidated revenue increased to PKR 69.73 billion from PKR 57.07 billion. Gross profit rose 11.3% to PKR 8.86 billion, operating profit rose 11.2% to PKR 5.81 billion, and profit before levy and tax climbed 33.0% to PKR 2.03 billion. After a PKR 990.0 million levy/final-tax charge, profit before income tax was PKR 1.04 billion. A PKR 12.5 million tax credit lifted net profit to PKR 1.056 billion, or PKR 35.20 per share, against PKR 978.0 million and PKR 32.60 per share in the restated prior year.
The gross margin declined to 12.71% from 13.95%, operating margin to 8.33% from 9.16%, and net margin to 1.51% from 1.71%. Sales therefore grew much faster than profit. No dividend was announced with the result.
At the parent-company level, sales rose 9.1% to PKR 56.33 billion, but gross profit slipped 2.9% to PKR 6.53 billion and net profit fell 4.0% to PKR 758.3 million. Standalone gross margin fell 1.44 percentage points to 11.59%. Distribution expense declined sharply enough for standalone operating profit to rise 5.0%, and finance cost fell 5.2%, but that was not sufficient to offset weaker gross economics and higher levies.
What improved
Spinning supplied most of the group’s incremental revenue. Segment sales increased 32.3% to PKR 38.72 billion and segment operating profit rose 13.8% to PKR 3.60 billion. Yarn production increased 5.2% to 69.20 million kilograms, slightly above stated capacity; the filing cautions that practical capacity varies with counts, spindle speed, twist and maintenance. The large gap between production growth and revenue growth indicates a favorable combination of sales volume, realization, product mix or cotton trading, but the filing does not disclose a clean price-volume split, so attributing the change to pricing alone would be speculative.
Apparel was the other growth engine after the demerger. Segment revenue rose 40.6% to PKR 13.41 billion and operating profit increased 24.5% to PKR 954.9 million. Actual production jumped 47.2% to 7.28 million pieces, equal to 89.6% of stated capacity. Apparel sales were overwhelmingly export-linked: the sales note reports PKR 13.35 billion of export apparel revenue and only PKR 59.1 million locally.
Consolidated cash generation improved materially. Cash generated from operations before finance cost and tax reached PKR 5.30 billion, up from PKR 3.45 billion. After PKR 3.65 billion of finance cost paid, PKR 889.4 million of income tax and statutory fund payments, operating cash flow turned positive at PKR 676.8 million, compared with a PKR 1.53 billion outflow a year earlier.
Equity also increased 5.7% to PKR 19.51 billion, entirely through retained earnings and the normal transfer of incremental depreciation from the revaluation surplus; the company paid no meaningful dividend during the year.
What weakened / needs attention
The principal weakness was margin dilution. Consolidated cost of sales increased 23.9%, slightly faster than revenue, which explains the 1.24 percentage-point fall in gross margin. Selling and administrative expenses together rose 11.6%, slower than sales, so operating profit still grew. That operating leverage was not enough to prevent the operating margin from compressing by 0.83 percentage points.
Segment detail shows where the pressure sat. Spinning’s operating margin declined to 9.31% from 10.82%, despite strong sales growth. Apparel margin fell to 7.12% from 8.04%. Weaving revenue decreased 3.7% to PKR 17.61 billion and operating profit declined 3.3% to PKR 1.25 billion, though its margin was broadly stable at 7.10%. Cloth production increased 6.8% to 57.99 million metres, or 90.6% of capacity, so the weaker weaving revenue cannot be explained by lower output alone. The accounts do not disclose enough order, pricing and mix detail to identify the exact cause.
Financing remains the central constraint. Finance cost declined just 2.0% to PKR 4.03 billion and still equalled 69.3% of operating profit. The group ended June with about PKR 30.45 billion of interest-bearing borrowings, up 2.7% year on year and equal to 1.56 times shareholders’ equity. That includes PKR 18.28 billion of short-term borrowing, PKR 9.04 billion of long-term finance and PKR 3.14 billion of current maturities.
The levy/final-tax charge rose 38.8% to PKR 990.0 million and absorbed 48.7% of profit before levy and tax. Because the income-tax line was a small credit in both years, the levy is the more consequential tax-like cash and earnings burden in the published statement.
Concentration risk also increased. One customer represented 27.14% of consolidated revenue, up from 16.92%. Geographic exposure remained broad—72% of revenue was generated from Pakistan and 28% from overseas markets—but dependence on a single buyer makes order continuity and collection quality more important.
Cash flow, working capital and balance sheet
Positive operating cash flow was a genuine improvement, but it did not cover investment. Capital expenditure was PKR 1.55 billion, leaving an approximate PKR 869.4 million deficit after capex before other investing flows. Net investing cash outflow was PKR 1.41 billion, funded by PKR 836.4 million of net financing inflow and the operating cash surplus. Closing cash doubled to PKR 198.0 million but remained very small relative to borrowings.
Working capital expanded unevenly. Inventory fell 9.8% to PKR 16.96 billion, while trade receivables increased 47.6% to PKR 9.11 billion and loans and advances almost doubled to PKR 2.15 billion. Inventory and receivables together accounted for roughly 76% of current assets before assets held for sale. The auditors identified receivables, revenue recognition and inventory valuation as key audit matters; they also highlighted financing obligations and covenant compliance.
Current assets, including PKR 1.80 billion classified as held for sale, were about 1.12 times current liabilities. Excluding that held-for-sale balance, the ratio was approximately 1.07 times. This is not an immediate deficit, but the cushion is thin and depends heavily on converting stock and receivables into cash. The rise in receivables—alongside much stronger sales—deserves particular attention in the next filing.
Demerger and accounting basis
The Lahore High Court sanctioned the scheme on November 11, 2025. The apparel business, including its assets and liabilities, was transferred to MG Apparel Limited effective January 1, 2025. At the effective date, PKR 3.59 billion of net assets moved to the subsidiary; MG Apparel issued shares with total consideration of PKR 2.64 billion. The transaction reduced standalone shareholders’ equity at June 30, 2025 by PKR 1.20 billion and reduced restated standalone FY2025 profit by PKR 188.6 million.
This restatement matters for analysis. The audited report provides like-for-like FY2025 comparatives on the new basis. Earlier, un-restated datasets can combine apparel activity differently and should not be used mechanically for year-on-year growth. For the same reason, an implied fourth quarter calculated by subtracting earlier nine-month figures could mix bases; this article intentionally avoids that calculation.
The external auditor issued an unmodified opinion on both the standalone and consolidated financial statements. The scheme and its restatement were a key audit matter, but not a qualification.
What to monitor next
First, watch whether spinning and apparel can hold their sales momentum without further margin loss. Reported output was already high relative to stated capacity in both apparel and cloth, while yarn output slightly exceeded nominal capacity. Future growth may therefore require better realization, mix, debottlenecking or additional investment rather than simply higher utilization.
Second, track receivables and customer concentration. The next result should show whether the PKR 2.94 billion increase in trade debts converts into cash and whether the largest customer’s 27% share normalizes. Stronger collections are essential if operating cash flow is to fund capex rather than add more borrowing.
Third, track finance cost against operating profit. Rates or repayment can help, but the decisive test is whether debt actually falls. Despite lower annual finance cost, consolidated borrowings increased, and short-term funding remained the largest component.
Finally, monitor the held-for-sale assets and the post-demerger contribution from MG Apparel. Consolidation now captures the apparel economics, while standalone MEHT does not. The group result is therefore the appropriate headline, but the parent’s narrower margin and lower profit remain relevant to legal-entity liquidity and financing.
AlphaGen model scores
These are AlphaGen model outputs, not figures reported by the company: Alpha QoQ Score 4.50; TTM Performance Score 13.55; 3Y Business Perf Score 42.63; Sector Leadership Score 24.96. They are presented as model signals only and do not replace the audited financial analysis above.
Evidence and limitations
The core identity, period, reporting basis, audited earnings, cash flow, balance sheet, segment results, production and restatement are publicly supported. The filing does not provide a sufficiently granular price-volume-mix bridge or management explanation for every margin movement. Accordingly, this analysis reports the arithmetic transmission and segment pattern without assigning unsupported company-specific causes. It also avoids a discrete fourth-quarter comparison because the demerger and restatement make subtraction from earlier cumulative data unreliable.
Sources
Mahmood Textile Mills FY2026 annual report (official PSX PDF).
MEHT company announcements and filings (Pakistan Stock Exchange).