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Nishat Mills Q3 FY26: Revenue Growth Masks Margin Compression as Associates Lift Earnings

Nishat Mills grew Q3 revenue, but group operating margins weakened. Associate profits drove the earnings uplift while cash conversion stayed under pressure.

Sep 24, 2026

Verdict

Nishat Mills Limited’s March 2026 quarter was stronger at the bottom line than it was in the underlying operating engine. On a consolidated basis, Q3 revenue increased 5.8% year on year to Rs54.28 billion, but gross profit fell 8.3% to Rs6.95 billion and gross margin compressed to 12.8% from 14.8%. Profit from operations, after other income, declined 24.4% to Rs3.22 billion.

The key offset came below operations. The group recorded Rs1.46 billion as its share of profit from associates in Q3, versus only Rs40 million a year earlier. That lifted profit before taxation and levy by 22.0% and helped total profit after tax rise 61.0% to Rs1.54 billion. Profit attributable to Nishat Mills shareholders rose 88.0% to Rs1.21 billion, taking EPS to Rs3.43 from Rs1.82.

The result therefore needs two readings at once: the diversified investment and associate base materially strengthened reported earnings, while the operating businesses still faced pressure from a weaker margin environment. Cash conversion improved versus last year but remained negative after finance cost and taxes, and short-term borrowing increased further. The next result cycle needs to show whether operating margins can recover without relying on a similarly large associate contribution.

Results at a glance

  • Company: Nishat Mills Limited
  • Ticker: NML
  • Reporting period: quarter and nine months ended March 31, 2026
  • Basis used for analysis: unaudited consolidated condensed interim financial statements under IAS 34. The company also published separate unconsolidated statements.
  • Q3 revenue: Rs54.28 billion, up 5.8% year on year
  • Q3 gross profit: Rs6.95 billion, down 8.3%; gross margin 12.8% versus 14.8%
  • Q3 profit from operations: Rs3.22 billion, down 24.4%; operating margin about 5.9% versus 8.3%
  • Q3 share of associates’ profit: Rs1.46 billion versus Rs40 million
  • Q3 total PAT: Rs1.54 billion, up 61.0%; EPS attributable to holding-company shareholders Rs3.43 versus Rs1.82
  • 9MFY26 revenue: Rs153.22 billion, down 1.8%; gross profit down 12.5%
  • 9MFY26 net operating cash flow: negative Rs1.08 billion versus negative Rs5.37 billion

What improved

The first improvement was top-line momentum in Q3. Consolidated revenue increased by almost Rs3.0 billion year on year. The geographical mix shows that growth was not confined to one market: revenue from America increased about 29.6%, Pakistan about 7.0% and Europe about 4.4%, while Asia, Africa and Australia declined about 7.2%.

Some product lines also showed useful growth. Q3 garments revenue rose about 29%, towels and bath robes about 24%, made-ups about 8%, and electricity revenue about 36%. Those gains offset weaker yarn and grey-cloth sales and helped the group return to quarterly revenue growth even though the nine-month top line remained slightly below the comparable period.

Finance cost also moved in the right direction. Q3 finance cost declined 5.6% to Rs1.91 billion, while nine-month finance cost fell 15.2% to Rs5.85 billion. The holding company’s directors explicitly attributed the nine-month decline in finance cost to lower average borrowing rates on both short- and long-term financing. That is consistent with the lower interest-rate environment that prevailed through most of the reporting period.

Cash generated from operations before finance cost and tax also improved materially to Rs8.95 billion for nine months from Rs4.37 billion. The working-capital drag narrowed substantially compared with the prior year, which is an important operational improvement even though final operating cash flow remained negative.

What weakened / needs attention

Gross margin was the clearest weak point. Q3 cost of sales rose 8.3%, faster than the 5.8% increase in revenue, pushing gross margin down by roughly two percentage points. Fuel and power expense rose to Rs5.12 billion from Rs4.69 billion in the quarter, salaries and wages increased, processing charges nearly doubled, and depreciation was materially higher. Raw-material consumption declined, but that saving was not enough to prevent overall cost pressure.

The pressure continued below gross profit. Distribution cost increased about 10.4% and administrative expense about 5.5% in Q3. Before other income, the group generated Rs1.77 billion from operations versus Rs2.79 billion a year earlier, a 36.5% decline. Other income was broadly stable, so it could not offset the deterioration in the operating cost structure.

Management’s separate-company commentary describes the textile environment as difficult, citing unfavorable rate variances despite higher volumes, rising production costs, geopolitical uncertainty and expensive raw-material conditions. That explanation is directionally consistent with the consolidated margin data, but it should be read as management commentary rather than as proof that every group-level movement had the same cause.

Recurring versus exceptional: associates changed the earnings picture

The quarter’s most important earnings-quality issue is the gap between operating profit and reported profit. After finance cost, the group had Rs1.31 billion of profit before associate income, levy and taxation. It then recognized Rs1.46 billion as its share of profit from equity-accounted associates, compared with Rs40 million in Q3 FY25.

That associate contribution is economically real, but it is different from profit generated by selling yarn, fabric, garments, retail products or electricity. It depends on the earnings of businesses outside the group’s fully consolidated operations and can be more variable from period to period. For that reason, Q3’s 61% increase in total PAT should not be interpreted as evidence that the core operating margin improved; the operating statements show the opposite.

The nine-month comparison is even more distorted. 9MFY26 total PAT was Rs7.31 billion versus a Rs1.18 billion loss a year earlier, but the prior period contained a Rs4.79 billion CPPA-G adjustment at Nishat Power, while current-period associates contributed Rs3.48 billion compared with a small loss previously. The current period also contained a Rs707 million taxation credit, versus a Rs2.81 billion tax expense in the comparable period. These below-operating items explain why the headline nine-month turnaround was much stronger than the operating trend.

Nine-month pattern: weaker core profitability despite a stronger earnings bridge

Across 9MFY26, consolidated revenue slipped 1.8% to Rs153.22 billion, gross profit fell 12.5% and gross margin declined to 13.8% from 15.5%. Profit from operations fell 29.2% to Rs10.85 billion. The deterioration is broader than a single soft quarter and shows that the group has been operating with less margin room than in the prior year.

The segment mix was uneven. Nine-month external revenue from spinning fell about 13.9%, weaving about 3.2% and dyeing about 28.0%. By contrast, home textile and terry increased about 9.8%, garments about 18.3%, while denim and workwear showed external revenue where the prior-period table showed none. This suggests downstream and value-added activities helped cushion pressure in traditional upstream textile lines.

Cash flow and balance sheet

Cash conversion improved but was not yet positive. The group generated Rs8.95 billion of cash from operations before finance cost and taxes, more than double the comparable figure. After Rs5.86 billion of finance cost paid and Rs4.31 billion of levy and income tax paid, however, net cash used in operating activities was Rs1.08 billion. That was much better than the Rs5.37 billion outflow a year earlier, but it still means accounting profit did not fully translate into operating cash.

The balance sheet also became more funding-intensive. Short-term borrowings increased 12.6% from June 2025 to Rs69.60 billion. Long-term financing, lease liabilities, short-term borrowings and the current portion of non-current liabilities together were roughly Rs102.0 billion at March 2026 versus about Rs95.3 billion at June 2025. Cash and bank balances declined 17.7% to Rs2.59 billion.

Working capital remains substantial. Stock-in-trade rose 6.7% from June to Rs70.04 billion and trade debts increased 4.6% to Rs29.57 billion. Current assets of Rs141.80 billion still exceeded current liabilities of Rs100.50 billion, but the current ratio eased to about 1.41 times from 1.47 times. Liquidity is therefore still positive on a current-assets basis, while the absolute financing burden remains significant.

Investment spending continued as well. The group spent Rs6.16 billion on property, plant and equipment during the nine months, while capital work in progress stood at Rs4.74 billion. This spending may support future capacity and efficiency, but it also competes for cash at a time when operating cash flow remains negative after financing and tax outflows.

Sector and peer context

Pakistan’s external-demand backdrop was soft around the quarter. Pakistan Bureau of Statistics data show total merchandise exports during July-March FY26 fell 7.99% in US-dollar terms year on year. In March alone, knitwear export value was down 14.5% year on year, readymade garments 6.5%, bed wear 6.5% and cotton cloth 1.7%, although cotton yarn was up 8.0%. That mixed picture supports the idea that textile demand was uneven rather than uniformly strong.

Input availability was also not especially comfortable. The Pakistan Economic Survey 2025-26 reported cotton production of 7.05 million bales, only marginally below the prior year and still a relatively constrained domestic crop for a large textile industry. Meanwhile, the State Bank of Pakistan held the policy rate at 10.5% in March 2026 after earlier easing, helping explain why finance costs were lower year on year even though borrowing volumes remained high.

Peer evidence shows that the margin pressure was not universal. Nishat (Chunian) Limited reported a 3.6% decline in nine-month sales but improved gross margin to 12.05% from 10.35%, helped by sourcing and sales-margin improvements in weaving and home textiles. That contrast suggests Nishat Mills’ gross-margin deterioration was partly company- and mix-specific rather than simply an unavoidable sector-wide outcome.

What to monitor next

  • Gross margin: whether the fall to 12.8% in Q3 reverses as product mix, input costs and pricing normalize.
  • Associate contribution: whether the unusually large Rs1.46 billion Q3 share of associate profit is sustained, rises or normalizes.
  • Downstream mix: continued growth in garments, made-ups, towels, home textile and newer denim/workwear activities versus weaker spinning and dyeing.
  • Cash conversion: whether operating cash flow turns positive after finance cost and taxes.
  • Borrowings and working capital: the trajectory of Rs69.60 billion of short-term borrowing, Rs70.04 billion of inventory and Rs29.57 billion of trade debts.
  • Finance cost sensitivity: whether lower average borrowing rates continue to outweigh the higher absolute financing requirement.
  • Export demand and input conditions: buyer activity, cotton availability, energy costs, freight and geopolitical disruptions through the next reporting cycle.

AlphaGen model outputs

  • Alpha QoQ Score: 43.44
  • TTM Performance Score: 64.11
  • 3Y Business Perf Score: 39.8
  • Sector Leadership Score: 55.7949

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

Sources

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