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National Silk & Rayon Q3 FY26: Margin Recovery Outruns a 20% Sales Drop, but Receivables Drain Cash

National Silk & Rayon’s Q3 sales fell 20%, yet gross and operating margins improved sharply. PAT more than doubled, while receivables weakened cash conversion.

Sep 24, 2026

Verdict

The National Silk & Rayon Mills Limited delivered a better-quality operating quarter than the headline sales decline suggests. Revenue for the quarter ended March 31, 2026 fell 20.2% year on year to Rs589.46 million, yet gross profit rose 35.8% to Rs44.15 million and profit from operations increased 57.7% to Rs28.47 million. Gross margin expanded to 7.49% from 4.40%, while operating margin improved to 4.83% from 2.44%. Profit after tax more than doubled to Rs18.01 million from Rs8.31 million.

The important qualification is that the PAT surge was not entirely an operating story. Profit before levy and taxation rose a much more moderate 43.9%, while the quarterly levy collapsed to Rs0.14 million from Rs6.96 million. Combined levy and taxation therefore fell about 19.7% to Rs7.64 million, even though the conventional tax charge itself increased. At the same time, nine-month operating cash flow swung to a Rs25.41 million outflow from a Rs66.39 million inflow, largely because trade receivables absorbed cash. The quarter therefore shows genuine margin repair, but also weaker cash conversion and a bottom-line growth rate amplified by a favorable levy comparison.

Results at a glance

  • Company: The National Silk & Rayon Mills Limited
  • Ticker: NSRM
  • Reporting period: quarter and nine months ended March 31, 2026
  • Basis: company-level condensed interim financial statements, unaudited, prepared under IAS 34 and subjected to limited-scope review by the auditors
  • Q3 revenue: Rs589.46 million, down 20.2% year on year
  • Q3 gross profit: Rs44.15 million, up 35.8%; gross margin 7.49% versus 4.40%
  • Q3 profit from operations: Rs28.47 million, up 57.7%; operating margin 4.83% versus 2.44%
  • Q3 finance cost: Rs2.82 million versus Rs0.23 million a year earlier
  • Q3 PAT: Rs18.01 million, up 116.7%; EPS Rs1.16 versus Rs0.53
  • 9MFY26 revenue: Rs1.843 billion, down 5.6%; PAT Rs48.07 million, up 86.5%
  • 9MFY26 operating cash flow: negative Rs25.41 million versus positive Rs66.39 million
  • Trade debts at March 31: Rs524.30 million versus Rs427.48 million at June 30, 2025

What improved

The strongest improvement came from the gross-profit line. Cost against services provided fell 22.8% in Q3, faster than the 20.2% decline in revenue. That difference was enough to lift gross profit by 35.8% and expand gross margin by roughly 309 basis points. This is economically meaningful because NSRM is a processing business in which relatively small changes in conversion cost can have a large effect on earnings when gross margins are in the mid-single digits.

The cost note explains much of the movement. Raw material consumed fell 27.7% to Rs345.59 million from Rs478.01 million. Raw material therefore absorbed about 58.6% of quarterly revenue versus 64.7% a year earlier. Fuel and power expense also declined in absolute terms, by 18.1% to Rs131.64 million, although it actually rose slightly as a share of revenue to about 22.3% from 21.7%. The evidence therefore points more strongly to lower raw-material intensity than to a structural improvement in energy economics.

That distinction matters because management continued to identify elevated power tariffs as a challenge. The company’s April 30 directors’ report also cited reduced local demand and pressure from local and imported raw materials amid geopolitical disruption. In other words, the margin recovery occurred despite a difficult demand and energy environment; it should not be interpreted as evidence that those external pressures have disappeared.

Operating leverage was also favorable. Administrative expenses increased 9.3% and other expenses rose 12.5%, but the Rs11.65 million increase in gross profit more than covered the higher overhead burden. Distribution costs declined 6.3%. As a result, profit from operations increased to Rs28.47 million even though sales were substantially lower.

What weakened / needs attention

The top line remains the clearest weakness. A 20.2% quarterly sales decline is too large to dismiss simply because margins improved. Management explicitly referred to reduced local demand, and the nine-month numbers show that this was not just a one-quarter timing effect: 9MFY26 revenue fell 5.6% to Rs1.843 billion. The business is therefore earning more from each rupee of sales than in the comparable period, but from a smaller revenue base.

Finance cost also moved the wrong way. Q3 finance cost rose to Rs2.82 million from only Rs0.23 million, while nine-month finance cost increased to Rs7.69 million from Rs2.16 million. The balance sheet does not show a comparable surge in bank borrowing: short-term borrowings were Rs49.99 million at March 31 versus Rs49.68 million at June 2025. A new right-of-use asset and lease liabilities are visible in the March balance sheet, but the interim report does not provide enough detail to attribute the full finance-cost increase to any single source. It is therefore safer to treat the rise as a cost pressure to monitor rather than assign a cause not disclosed by the company.

The levy comparison also flatters headline PAT growth. Q3 profit before levy and taxation rose 43.9% to Rs25.65 million, which is already a strong operating and pre-financing improvement. But the levy fell to only Rs0.14 million from Rs6.96 million. Profit before taxation consequently rose 134.8% to Rs25.52 million. Taxation then increased to Rs7.50 million from Rs2.55 million, leaving PAT up 116.7%. The recurring signal is the improvement in gross and operating profit; the collapse in the levy should be treated separately when judging the repeatability of the PAT growth rate.

Cash conversion is the other major concern. Stronger accounting profit did not translate into stronger operating cash flow. The nine-month statement shows only Rs5.49 million of cash generated before finance cost, tax and long-term deposits, down from Rs97.75 million in the comparable period. After those payments, operating cash flow was negative Rs25.41 million.

Nine-month economics: broader margin repair, not just a quarterly spike

The nine-month result supports the view that margin improvement is broader than one quarter. Revenue declined 5.6%, but gross profit rose 30.3% to Rs131.23 million. Nine-month gross margin expanded to 7.12% from 5.16%. Profit from operations rose 39.9% to Rs80.43 million, even as finance cost more than tripled.

Below operating profit, the same levy effect remains important. Profit before levy and taxation rose 31.4% to Rs72.74 million. The nine-month levy fell to Rs0.35 million from Rs17.41 million, so profit before taxation rose 90.8% to Rs72.39 million. Taxation doubled to Rs24.32 million, but total levy plus tax still fell about 16.6% to Rs24.67 million. PAT therefore increased 86.5% to Rs48.07 million.

Both operating segments improved their gross economics. Dyeing revenue declined 5.6% to Rs1.678 billion, but dyeing gross profit rose 33.6% to Rs112.64 million, lifting segment gross margin to about 6.71% from 4.74%. Embroidery revenue also fell 5.6%, to Rs164.96 million, while gross profit rose 13.2% to Rs18.59 million and margin improved to about 11.27% from 9.40%. Dyeing remains the much larger earnings driver, so its margin recovery explains most of the group-level gross-profit improvement.

This is an encouraging operating pattern: lower sales did not force margins lower, and both disclosed segments generated better gross margins. However, the absence of disclosed processing volumes or average pricing prevents a clean separation of volume, price, mix and efficiency. The safest interpretation is that the cost structure improved relative to revenue, with raw-material intensity providing the clearest numerical evidence.

Cash flow and balance sheet: receivables absorb the earnings improvement

Working capital explains most of the cash-flow deterioration. The company recorded a Rs103.83 million cash absorption from working-capital changes in 9MFY26, compared with an Rs18.99 million release a year earlier. Trade debts alone absorbed Rs96.81 million, reversing the Rs34.94 million receivable release recorded in the comparable period.

The balance sheet confirms that movement. Trade debts rose 22.6% from June 2025 to Rs524.30 million, while cash and bank balances fell 87.5% to Rs11.23 million. Current assets increased 2.5% and current liabilities only 0.7%, so the current ratio improved modestly to about 1.17x from 1.15x. But the composition of liquidity weakened because more of the current-asset base is tied up in receivables while cash is much lower.

Short-term bank borrowings were broadly unchanged at about Rs50.0 million, which means the company did not fund the receivable build through a major increase in that line. Instead, cash balances carried much of the burden. That makes collection discipline a central next-quarter variable: if trade debts normalize, cash conversion can improve quickly; if they continue to rise, stronger accounting margins may remain disconnected from liquidity.

NSRM also continued investing. Nine-month capital expenditure on property, plant and equipment was Rs81.21 million. The fixed-asset note shows Rs85.45 million of additions before disposals and depreciation, including about Rs38.73 million of plant and machinery and Rs41.66 million of vehicles. Net investing cash outflow was Rs49.17 million after Rs32.11 million of disposal proceeds. The investment is real, but the report does not quantify future capacity, utilization or savings from these additions, so no earnings benefit should be assumed in advance.

Sector and demand context

The macro backdrop around the March quarter was mixed rather than uniformly weak. Pakistan Bureau of Statistics data show overall large-scale manufacturing output grew 6.48% in July-March FY26 and 11.09% year on year in March. That broad industrial recovery makes it difficult to explain NSRM’s revenue decline as simply a nationwide manufacturing contraction.

Textile-linked external demand was softer. PBS reported Pakistan’s total exports down 7.99% in US-dollar terms during July-March FY26 and down 13.99% year on year in March. In rupee terms, March knitwear exports fell 14.51% year on year, readymade garments 6.48% and cotton cloth 1.70%. These figures are useful downstream context for a fabric-processing company, but they do not prove the cause of NSRM’s sales decline. The company’s own report is more direct: management cited reduced local demand, high power tariffs and raw-material and fuel pressure.

A same-sector peer check also needs caution. Ibrahim Fibres is classified with NSRM in Synthetic & Rayon but manufactures polyester staple fibre and yarn rather than providing the same dyeing, bleaching, finishing and embroidery mix. Its disclosures therefore offer only broad sector context, not a like-for-like operating benchmark. For NSRM, the company’s own segment and cost disclosures are more informative than forcing a peer comparison that could imply false precision.

Historical pattern: margin normalization, not a new peak

The Q3 gross margin of 7.49% looks much stronger than the 4.40% recorded in Q3 FY25, but the longer record is more measured. NSRM reported annual gross margins of roughly 7.77% in FY2025 and 7.22% in FY2024, after only about 3.04% in FY2023. The current quarter therefore represents a return toward the company’s more recent normalized annual margin range rather than a step into unprecedented profitability.

That is still meaningful. The company has recovered from the much weaker FY2023 base and is sustaining better gross economics even while sales are under pressure. The next test is whether it can preserve a 7%-plus gross margin when revenue recovers, rather than relying on cost contraction during a lower-sales period.

Recurring versus non-recurring drivers

The most repeatable positive is the improvement in gross economics. Raw-material cost declined faster than sales, both dyeing and embroidery margins improved over nine months, and operating profit rose substantially. These are operating developments rather than accounting gains, although their durability still depends on pricing, raw-material costs, energy tariffs and demand.

The sharply lower levy is different. It meaningfully boosted the year-on-year growth in profit before tax and PAT, but the public filing does not establish that such a low levy will recur every quarter. Headline PAT growth should therefore be read alongside profit before levy and taxation, where Q3 growth was 43.9% rather than 116.7%.

The receivable build is not an earnings item, but it is central to earnings quality. A business can report stronger profit while cash is trapped in customers. Until collections improve, the cash-flow statement remains the main counterweight to the stronger income statement.

What to monitor next

  • Revenue recovery: whether the 20% Q3 sales decline begins to reverse and whether management’s reference to weak local demand improves in the next cycle.
  • Gross margin durability: whether raw-material intensity remains lower and gross margin can hold near or above the recent 7%-8% range.
  • Energy economics: fuel and power remains a very large cost line and rose slightly as a percentage of Q3 revenue despite declining in absolute rupees.
  • Receivable collection: whether trade debts fall from Rs524.30 million and operating cash flow returns to positive territory.
  • Finance cost and lease obligations: whether the sharp rise in finance expense persists even with broadly stable short-term bank borrowing.
  • Levy and taxation: whether the unusually low levy continues or the bottom line converges more closely with the underlying pre-levy earnings trend.
  • Listing/compliance status: PSX currently displays a Risk Warning Alert for NSRM referencing continuous violation under clauses 5.11.1 or 5.11.2. This is separate from Q3 operating performance but remains a corporate risk to monitor.

AlphaGen model outputs

  • Alpha QoQ Score: 36.74
  • TTM Performance Score: 85.98
  • 3Y Business Perf Score: 97.08
  • Sector Leadership Score: 66.83

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

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