Verdict
The National Silk & Rayon Mills Limited (NSRM) delivered a mixed FY2026. Revenue was almost unchanged and gross profit declined, but reported operating profit still improved because the prior year included a sizeable sales-tax refundable write-off that did not recur. That operating improvement did not reach shareholders: finance cost more than tripled, the tax charge rose sharply, and profit after tax fell 16.0% to Rs70.04 million.
The bigger concern is cash quality. Operations used Rs23.64 million of cash after generating Rs125.99 million a year earlier. Receivables increased, cash nearly halved and borrowings rose materially while the company continued to invest in plant. The result is therefore better at the operating-profit line than at the net-income and cash-flow lines. The board’s decision not to declare a dividend, citing liquidity and the interest-rate environment, is consistent with that balance-sheet picture.
Results at a glance
- Period and basis: audited, unconsolidated financial statements for the year ended 30 June 2026; figures below are in Pakistani rupees unless stated otherwise.
- Revenue: Rs2.461 billion, up 0.4% from Rs2.451 billion.
- Gross profit: Rs186.01 million, down 2.4%; gross margin eased to 7.56% from 7.77%.
- Profit from operations: Rs120.47 million, up 5.2%; operating margin improved to 4.89% from 4.67%.
- Profit before taxation: Rs109.14 million, down 1.7%.
- Profit after tax: Rs70.04 million, down 16.0%; EPS declined to Rs4.50 from Rs5.36.
- Operating cash flow: negative Rs23.64 million versus positive Rs125.99 million.
- No dividend was recommended for FY2026.
AlphaGen model scores
These are AlphaGen model outputs, not figures reported by NSRM:
- Alpha QoQ Score: 52.13
- TTM Performance Score: 19.88
- 3Y Business Perf Score: 88.07
- Sector Leadership Score: 43.67
Income statement: why operating profit rose while net profit fell
NSRM’s top line was effectively flat. Revenue increased by only Rs10.09 million, or 0.4%, to Rs2.461 billion. Management attributed the subdued performance to rising input and freight costs and weak demand amid inflation and geopolitical disruption. The national backdrop was similarly muted: Pakistan’s textile exports increased only 0.26% in FY2026, while June textile exports were 16.7% lower year on year, according to PBS data reported by Associated Press of Pakistan.
Cost of sales rose 0.6%, faster than revenue. Gross profit consequently fell Rs4.49 million to Rs186.01 million and the gross margin narrowed by 21 basis points to 7.56%. The filing does not provide a clean price-versus-volume-versus-mix bridge, so it would be speculative to assign the contraction to any one factor. It does, however, disclose lower physical throughput: cloth processing fell 3.0% to 27.40 million metres and embroidery processing fell 1.0% to 3.21 million metres.
Reported operating profit improved despite weaker gross profit. Distribution cost fell 19.6% to Rs2.96 million, while administrative expenses rose 18.2% to Rs59.62 million. The decisive swing was other expenses, which dropped to Rs11.84 million from Rs30.30 million. FY2025 included a Rs16.94 million write-off of sales-tax refundable; no comparable charge appeared in FY2026. This makes the 5.2% operating-profit increase real on the reported basis, but it is substantially a non-repeat of a prior-year charge rather than a broad-based improvement in the underlying cost structure.
Below operating profit, financing erased the gain. Finance cost increased to Rs11.32 million from Rs3.09 million. The FY2026 total included Rs6.68 million of markup on short-term borrowings and Rs3.42 million on new long-term financing. Profit before levy and tax slipped 2.0% to Rs109.15 million, while profit before taxation after levy was Rs109.14 million.
The interest-rate backdrop remained restrictive: the State Bank of Pakistan’s policy rate was 11.5% after its 15 June 2026 decision. That context helps explain why management still highlighted high interest rates, but NSRM’s own increase in finance cost should not be attributed to the benchmark alone. The more direct company-specific evidence is the larger borrowing base, including the doubling of short-term borrowings and the addition of long-term financing.
The tax line compounded the pressure. Taxation rose 41.4% to Rs39.10 million, including an Rs8.31 million deferred-tax charge; FY2025 instead benefited from a Rs3.03 million deferred-tax credit. The effective tax burden therefore rose to roughly 35.8% of profit before taxation from about 24.9%. With both financing and tax moving against the company, profit after tax fell to Rs70.04 million and EPS to Rs4.50.
What improved
The strongest positive is that NSRM remained profitable and lifted reported operating profit despite flat revenue and gross-margin pressure. The absence of the prior-year sales-tax write-off reduced other expenses by Rs18.46 million. Other income also edged up to Rs8.88 million, helped by a larger gain on disposal of property, plant and equipment, though that gain is not recurring operating income.
Segment data show some resilience in embroidery. Embroidery revenue fell 4.3% to Rs425.84 million, but its gross profit remained broadly flat at Rs34.60 million. That implies an embroidery gross margin of about 8.13%, up from 7.77%. Dyeing, the much larger segment, grew revenue 1.5% to Rs2.036 billion, but gross profit declined 2.9% to Rs151.41 million and its gross margin eased to about 7.44%. Mix and segment margins therefore provided only limited support.
The asset base also received investment. Cash capital expenditure was Rs99.34 million, and the fixed-asset note shows Rs103.58 million of additions to operating assets, principally plant and machinery. This may support efficiency or capacity over time, but the current report does not quantify the expected return or show a utilization benefit yet.
What weakened / needs attention
Cash conversion deteriorated sharply. Cash generated from operations before interest and taxes fell to Rs34.65 million from Rs165.96 million. After finance cost, tax, deposits and employee-fund payments, operating activities used Rs23.64 million of cash. The main bridge was a Rs133.96 million working-capital outflow, compared with only Rs5.05 million a year earlier.
That working-capital drag was traceable. Trade debts absorbed Rs54.80 million, stores and spares absorbed Rs29.49 million, and trade and other payables declined by Rs67.84 million, partly offset by higher contract liabilities and lower advances. Closing trade debts reached Rs480.38 million, up 12.4%. More importantly, Rs254.70 million was past due but not impaired, up from Rs188.15 million. The company says these balances relate to independent customers with no recent default history, but the ageing shift deserves monitoring because it ties up liquidity and raises collection risk.
Liquidity tightened. Cash and bank balances fell 46.3% to Rs48.12 million. Short-term borrowings doubled to Rs99.54 million, and the company added Rs24.18 million of long-term financing including the current portion. Total borrowings were therefore about Rs123.72 million versus Rs49.68 million. Financing cash inflow of Rs74.05 million partly funded the operating deficit and investment program, but the higher debt load also explains the jump in finance cost.
The current ratio improved slightly to 1.19 times from 1.15 times, yet this should not be read as abundant liquidity: receivables represent nearly two-thirds of current assets, cash is much lower and contractual debt service has increased. Management described liquidity risk as low, but the board separately cited liquidity when withholding the dividend. The prudent reading is that the company remained solvent and met obligations, while its cash cushion became thinner.
Total equity increased 9.7% to Rs1.705 billion, but Rs80.25 million of that increase came from a revaluation surplus on freehold land rather than operating cash generation. Unappropriated profit rose by the Rs70.04 million annual profit because no dividend was recognized. The stronger book-equity base supports balance-sheet solvency, but the non-cash revaluation does not improve day-to-day liquidity or fund debt service.
Capacity utilization also remained low. Cloth processing used 43.63% of rated capacity, down from 44.98%, while embroidery used 37.29%, down from 37.67%. The filing does not disclose the economic split between demand, scheduling and technical constraints, so no stronger causal claim is warranted.
Historical and quarterly perspective
FY2026 revenue was 40% above FY2022 and 14% above FY2024, showing that the business has expanded over the medium term. Profitability has been more volatile: NSRM recorded a loss in FY2023, recovered to Rs66.30 million of profit in FY2024 and reached Rs83.40 million in FY2025 before easing to Rs70.04 million in FY2026. The three-year recovery remains visible, but the latest year interrupted the upward net-profit trend.
The discrete June quarter was stronger than the full-year average. Based on the audited annual total less the published nine-month figures, fourth-quarter revenue was about Rs618.39 million and profit after tax about Rs22.10 million. The implied quarterly gross margin was roughly 8.86% and net margin 3.57%, both above FY2026’s full-year margins. This arithmetic is useful directionally, but the company did not publish a separate audited fourth-quarter statement or a detailed quarter-specific driver bridge.
What to monitor next
- Collections: whether past-due receivables and total trade debts decline without a rise in expected-credit-loss charges.
- Borrowing and finance cost: whether short-term debt falls as working capital normalizes, and whether the new plant investment generates enough cash to cover its funding cost.
- Gross margin: whether NSRM can recover the 21-basis-point decline without relying on non-recurring cost comparisons.
- Utilization: whether cloth and embroidery throughput improves from 43.63% and 37.29% of rated capacity.
- Tax: whether the deferred-tax swing normalizes after adding Rs11.33 million to the year-on-year increase in the tax charge.
- Dividend capacity: management linked the omission to liquidity and interest rates, so cash generation—not accounting profit alone—will determine when distributions can resume.
Conclusion
NSRM’s FY2026 result is best described as operationally stable but financially stretched. The company protected reported operating profit and ended with a profitable fourth quarter, yet gross economics softened and the quality of earnings weakened. A lower prior-year write-off helped operating profit; higher financing and tax then reduced net profit; working capital and capital expenditure consumed cash; and borrowing filled the gap.
The next result needs to show more than revenue growth. The key confirmation would be cash conversion: lower receivables, reduced short-term borrowing and finance cost, and improving utilization. Until then, the strong three-year recovery record sits alongside a latest-year warning from the balance sheet.
Primary sources
NSRM Annual Report 2026 — audited financial statements and directors’ report
Pakistan Stock Exchange — NSRM company announcements and financial summary
Pakistan Bureau of Statistics — June 2026 external trade statistics
State Bank of Pakistan — Monetary Policy Statement, 15 June 2026