AlphaGen
Access AlphaGen
Company Narratives

Mughal Energy Q3 FY26: Profit Arrives Before Power Sales as Commissioning and Funding Intensify

Mughal Energy turned a small Q3 profit before commercial power sales, as other income offset rising commissioning, finance and working-capital costs.

Sep 21, 2026

Verdict

Mughal Energy Limited’s Q3 FY26 result is a commissioning story, not yet an electricity-sales story. The company remained pre-commercial at March 31, 2026, but Q3 profit after tax turned positive at Rs0.98 million from a Rs5.23 million loss a year earlier. That swing came because other income rose to Rs17.50 million—mainly rental income and a line described as notional income against development of property—while there was still no revenue from power sales. At the same time, project spending, working-capital absorption and financing needs accelerated sharply. The key positive is operational progress: turbine rolling and reliability testing had begun by quarter-end. The key caution is earnings quality: the first quarterly profit was not generated by commercial electricity billing.

Results at a glance

  • Company Name: Mughal Energy Limited
  • Ticker: GEMMEL
  • Reporting period: Third quarter and nine months ended March 31, 2026
  • Reporting basis: Unaudited standalone condensed interim financial statements under IAS 34 and applicable Pakistani reporting requirements; figures are presented in Pakistani rupees.
  • Commercial status at period-end: The company had not yet commenced commercial operations; revenue and cost of sales were therefore not reported.
  • Q3 FY26: Profit after tax Rs0.98m versus loss Rs5.23m in Q3 FY25; EPS Rs0.01 versus loss per share Rs0.03.
  • 9MFY26: Loss after tax Rs0.08m versus loss Rs12.41m in 9MFY25, a 99.3% narrowing.
  • Board entitlement with the result: no cash dividend, bonus shares or right shares.
  • Alpha QoQ Score: N/A
  • TTM Performance Score: N/A
  • 3Y Business Perf Score: N/A
  • Sector Leadership Score: 43.34

The four scores above are AlphaGen model outputs and are not company-reported figures.

What improved

The biggest improvement was physical project progress. Management said turbine rolling had been initiated, starting gradual power generation and load/reliability testing, including system-stability and safety checks. It also said procurement of imported coal had commenced. This was a more advanced stage than a year earlier, when the plant was still described as being installed and commissioning had not begun. It is important, however, not to treat test generation as commercial revenue: management explicitly said the company was still pre-commercial for the period ended March 31.

The reported loss also nearly disappeared. For nine months, the loss after tax narrowed to only Rs0.082 million from Rs12.407 million. Q3 itself moved into a Rs0.980 million profit. This is a meaningful accounting improvement, but its source matters more than its size: higher other income, rather than power-sales economics, carried the result.

Regulatory flexibility also improved during the period. In February 2026, NEPRA approved a modification allowing the 36.5 MW generation facility to use suitable biomass, or blends of coal and biomass, alongside imported or local coal. NEPRA’s determination says the plant is intended to supply designated bulk power consumers within the Mughal group and that tariffs are to be settled mutually. This fuel flexibility could become economically relevant once commercial dispatch builds, but it did not create Q3 power revenue.

What weakened / needs attention

The cost base rose materially before revenue started. Q3 administrative expense increased 126.7% year on year to Rs11.67 million, while nine-month administrative expense increased 176.2% to Rs38.93 million. Finance cost also rose sharply: to Rs4.89 million in Q3 from only Rs0.03 million a year earlier, and to Rs13.40 million for nine months from Rs0.03 million. A pre-revenue project naturally carries commissioning and funding costs, but these figures show the hurdle commercial operations must clear before the earnings profile becomes self-sustaining.

Cash conversion weakened much more than the headline loss suggests. Net cash used in operating activities was Rs931.73 million in 9MFY26 versus Rs53.15 million a year earlier. The main working-capital drains were a Rs609.92 million inventory build, Rs341.13 million increase in amounts due from government, and Rs3.28 million increase in advances, partly offset by higher trade and other payables. Because the company had not yet commenced commercial operations, this cash use should be read as pre-operating build-out and working-capital funding rather than as a mature operating-cash-flow margin.

The Q3 profit was real accounting profit—but not power profit

The Q3 income statement is unusually simple. There was no power-sales revenue and no cost of sales because commercial operations had not started. Administrative expense was Rs11.67 million. Other income was Rs17.50 million. Finance cost was Rs4.89 million. After smaller other charges, the company reported Rs0.98 million profit before and after tax, versus a Rs5.23 million loss in the comparable quarter.

The composition of other income explains the turnaround. For 9MFY26, other income was Rs52.70 million versus Rs1.93 million a year earlier. Of the FY26 amount, Rs31.50 million was rental income, Rs20.58 million was described as notional income against development of property, Rs0.45 million was a gain on sale of store items, and the balance came from small bank-profit, foreign-exchange and write-back items. Rental income therefore represented about 60% of nine-month other income, while the notional-income line represented about 39%.

That makes the recurring/non-recurring distinction crucial. Rental income may continue while the relevant lease remains in force—the directors’ review says the solar-plant lease arrangement with the holding company had been extended until September 2026—but it is not electricity-generation revenue. The notional-income line is also not evidence of commercial power economics. The small gain on store-item sales is clearly incidental. For analytical purposes, none of these lines should be used as a substitute for the gross profit and cash generation that must eventually come from commercial power supply.

Nine-month economics: near break-even accounting, but a much larger funding footprint

For the nine months, the company reduced its loss after tax to Rs0.08 million despite administrative expense of Rs38.93 million and finance cost of Rs13.40 million. Other income of Rs52.70 million effectively bridged most of that pre-commercial cost base. This is why the 99.3% reduction in the reported loss should not be read as a 99% improvement in underlying power profitability: there was still no commercial electricity revenue to measure.

The balance sheet shows how rapidly the project was scaling. Capital work in progress reached Rs6.64 billion at March 31, up from Rs4.65 billion at June 2025, an increase of about 42.9%. During the nine months, additions to capital work in progress were Rs2.23 billion, mainly against the hybrid power plant. Total assets increased to Rs10.29 billion from Rs7.24 billion. Raw-material inventory rose to Rs609.92 million from nil at the prior year-end; alongside management’s statement that imported-coal procurement had begun, this is consistent with preparations for commissioning and operations.

The project’s financing footprint expanded at the same time. Long-term financing was Rs3.28 billion, unsecured short-term loans from directors and their relatives were Rs2.97 billion, and the current portion of long-term financing was Rs351.21 million. Together, those principal financing balances were about Rs6.61 billion versus roughly Rs3.62 billion at June 2025, an increase of about 82.7%. Current liabilities rose to Rs3.57 billion from Rs533.75 million, while current assets reached Rs1.84 billion from Rs773.35 million. The simple current ratio therefore fell to about 0.52 from 1.45.

Cash flow: construction and working capital were financed externally

The cash-flow statement makes the funding dependency explicit. After Rs931.73 million of operating cash outflow, net cash used in investing activities was another Rs1.65 billion, including Rs1.89 billion of property, plant and equipment payments partly offset by Rs238.18 million proceeds from sale of store items. Financing activities generated Rs2.66 billion, dominated by Rs2.71 billion of proceeds from short-term loans from directors and their relatives, plus Rs283.85 million from long-term financing, less Rs332.47 million of finance-cost payments. That cash finance-cost payment is far above the Rs13.40 million finance cost recognized in the nine-month income statement; the interim report does not provide enough detail to attribute the full difference, so it should not be assumed that the P&L charge represents the period’s entire cash financing burden.

Cash and cash equivalents still increased to Rs92.90 million from Rs14.76 million at the start of the year because financing inflows exceeded operating and investing outflows. That pattern is consistent with a project still being commissioned, but it changes the next-quarter test. Once commercial billing begins, the company needs to demonstrate whether customer cash receipts can replace related-party funding and whether finance cost moves toward a sustainable level relative to operating earnings.

Regulatory and financing context

NEPRA lists Mughal Energy as a captive power producer with a 36.5 MW thermal generation licence comprising a 31.5 MW and a 5 MW steam turbine. Its February 13, 2026 determination approved biomass as an additional permitted fuel alongside local/imported coal and preserved the existing authorization to supply three designated Mughal-group bulk power consumers. That structure matters because this is not a conventional merchant or public-grid IPP result: the eventual revenue model is tied to captive/group power supply, so comparisons with mature listed IPPs have limited explanatory value for this pre-commercial quarter.

Funding conditions also deserve attention. The State Bank of Pakistan kept its policy rate at 10.5% on March 9, 2026, then raised it to 11.5% effective April 28. The policy rate does not establish Mughal Energy’s contractual borrowing rate, so it should not be used to calculate finance cost directly. It does, however, show that the company entered its commercial phase with a still-elevated benchmark-rate environment at the same time that financing balances had expanded substantially.

Post-period developments materially de-risk commissioning—but belong to the next cycle

Two later disclosures are highly relevant to what happened next, but they must not be credited to the March-quarter result. On June 15, the board approved early settlement of a Rs2.50 billion long-term loan from the holding company after securing five-year long-term financing from United Bank Limited, including a one-year grace period. On June 29, the company said Rs1.858 billion of that holding-company loan had been settled early, with Rs661.667 million continuing under previous terms. This changed the funding structure after the reporting date; it does not alter the March 31 balance sheet.

Most importantly, on August 31, 2026 the company informed PSX that the main 31.50 MW turbine had been successfully commissioned, achieved Commercial Operation Date after required testing and commissioning, and was ready for commercial billing. That is the clearest validation that the long construction cycle progressed into revenue-generating readiness after Q3. It also sharpens the next analytical question: the next results should begin showing whether commercial power sales can replace other income as the main earnings engine.

Recurring versus non-recurring earnings drivers

  • Expected recurring after commercial start: electricity sales to designated bulk power consumers, fuel costs, plant operation and maintenance, staffing, depreciation and normal finance cost.
  • Recurring for a limited contractual period rather than core generation: rental income under the solar-plant lease arrangement, which management said was extended to September 2026.
  • Not evidence of core generation profitability: notional income against development of property and the gain on sale of store items.
  • Pre-commercial/transitional: commissioning and reliability-testing costs, project build-out, inventory accumulation and heavy reliance on construction-stage financing.

What to monitor next

The first priority is commercial billing. The August COD disclosure means the central question is no longer whether the main 31.5 MW turbine can reach commissioning; it is how quickly billed electricity volumes, realized captive tariffs and collections build. The next income statement should therefore be judged on power revenue and gross operating economics before looking at other income.

Second, watch fuel mix and reliability. NEPRA has permitted coal, biomass or blends, while management had begun imported-coal procurement by March. Actual fuel choice will matter for generation cost, working capital, supply security and margins. Any disclosure on availability, load factor, outages or the status of the remaining 5 MW turbine would materially improve visibility on the usable 36.5 MW licensed capacity.

Third, monitor leverage and cash conversion. The post-period refinancing reduces reliance on the holding-company loan, but it does not remove finance cost. Commercial operations need to generate enough operating cash to fund fuel and maintenance while servicing debt. A sustained reduction in director/related-party short-term funding, normalization of the current ratio, and positive operating cash flow would be stronger evidence of business-model maturity than another quarter supported by rental or notional income.

Finally, separate construction success from economic success. Q3 FY26 showed real operational progress and a reported profit, but it did not yet prove the power plant’s earning power. The next result cycle is the important one: for the first time, the company should have the opportunity to demonstrate whether the commissioned plant can convert its large invested asset base and expanded financing structure into recurring electricity revenue, operating cash and durable profitability.

Sources

Explore more research

All articles