Verdict: Pace (Pakistan) Limited’s first quarter of FY2027 showed a much better underlying gross result, but weaker reported earnings and poor cash conversion. Consolidated revenue fell 31.7% year on year, yet gross profit rose 7.6% and the gross margin expanded sharply. That operating improvement was obscured by the disappearance of the prior-year quarter’s large other-income contribution. Profit after tax fell 62.1% to Rs115.8 million, while operating activities consumed Rs316.7 million of cash. The quarter therefore looks stronger at the gross-profit level, but fragile on liquidity and earnings quality.
This review uses the unaudited consolidated statements for the quarter ended September 30, 2026, with the restated July-September 2025 figures presented by the company. Unless stated otherwise, figures are consolidated and in Pakistani rupees. This distinction is essential: the same announcement also contains standalone numbers that tell a very different story because standalone other income was Rs588.8 million. Mixing those statements would materially overstate the group’s earnings.
Results at a glance
- Revenue declined to Rs303.7 million from Rs444.4 million, a drop of 31.7%.
- Gross profit increased to Rs152.4 million from Rs141.7 million, up 7.6%, while gross margin rose to 50.2% from 31.9%.
- Administrative and selling expenses fell 36.2% to Rs67.1 million from Rs105.1 million.
- Reported profit from operations fell to Rs83.4 million from Rs377.0 million because current other income was negative Rs1.9 million versus positive Rs362.5 million a year earlier.
- Profit before income tax and minimum taxes declined 57.1% to Rs145.9 million; profit after tax fell 62.1% to Rs115.8 million.
- Basic and diluted EPS was Rs0.24 versus restated Rs0.64. No dividend or other payout was declared.
- Net cash used in operating activities was Rs316.7 million, compared with Rs10.4 million in the prior-year quarter.
What improved
The clearest improvement was inside the gross result. Cost of revenue fell to Rs151.3 million from Rs302.8 million, a much larger reduction than the decline in sales. As a result, the group produced slightly more gross profit on substantially less revenue. The arithmetic is unusually strong: each Rs100 of revenue generated about Rs50.2 of gross profit, compared with Rs31.9 in the restated comparative quarter.
The filing does not provide the revenue split, unit volumes, selling prices, property handovers or project mix needed to identify the commercial cause of this margin expansion. It is therefore defensible to describe the transmission - lower cost of revenue relative to sales - but not to attribute it to a specific project, pricing action or mix shift.
Overhead discipline also helped. Administrative and selling expenses declined by Rs38.1 million. A useful core operating subtotal, calculated as gross profit less administrative and selling expenses, improved to Rs85.3 million from Rs36.5 million. This is not a company-reported line; it is a reproducible calculation that isolates the trading result before other income and other expenses.
Finance cost fell to Rs26.6 million from Rs80.1 million, a reduction of 66.7%. The quarter also included Rs18.4 million of exchange gain on foreign-currency convertible bonds and Rs70.8 million share of profit from an associate. The associate contribution was absent from the comparative quarter and was material to current pre-tax profit.
What weakened / needs attention
Headline earnings were substantially lower despite the improved gross result. Reported profit from operations dropped 77.9% because the restated comparative quarter included Rs362.5 million of other income, while the current quarter recorded negative other income of Rs1.9 million. The prior-year quarter also carried Rs22.0 million of other expenses, but their absence this year was far too small to offset the loss of that income.
This makes the year-on-year PAT comparison easy to misread. The Rs189.8 million decline in net profit does not mean the underlying gross economics worsened. Rather, recurring-looking gross and overhead lines improved, while non-operating and other-income support fell sharply. Conversely, current profit still depends meaningfully on the Rs70.8 million associate contribution and Rs18.4 million exchange gain, so it should not be treated as a pure property operating result.
Tax charges also became more visible. The company reported Rs6.4 million of minimum tax and Rs23.7 million of taxation in the current quarter. The comparative carried Rs34.2 million of minimum tax but no separate taxation charge in the presented consolidated statement. These lines should be kept separate when reproducing profit before and after tax.
Balance sheet: liquidity remains the central risk
At September 30, 2026, current assets were Rs6.393 billion against current liabilities of Rs8.963 billion. That implies a current ratio of about 0.71 and negative working capital of Rs2.570 billion. Both weakened from June 30, when the ratio was about 0.78 and negative working capital was Rs2.043 billion.
The most concerning movement was in trade debts, which increased to Rs1.496 billion from Rs607.4 million in three months - a rise of Rs888.9 million, or 146.3%. Inventory eased only modestly to Rs3.379 billion from Rs3.452 billion. The cash-flow statement confirms that working-capital absorption was not merely presentational: cash generated from operations was negative Rs308.4 million.
Cash and bank balances fell 42.4% to Rs9.3 million. Against this, the group reported Rs5.374 billion as the current maturity of long-term liabilities and Rs1.081 billion of accrued finance cost. These balances do not establish an imminent default on their own, but they show that liquidity headroom is extremely thin and refinancing or settlement execution remains decision-relevant.
Total equity increased 18.2% to Rs2.764 billion. The movement was supported by Rs115.8 million of quarterly profit and Rs309.9 million of proceeds from shares issued under the employee stock option scheme. Issued capital rose to Rs4.845 billion from Rs4.500 billion. This strengthened book equity, but the same share proceeds also funded most of the quarter’s operating cash deficit, so the improvement should not be confused with internally generated cash.
Asset classification changed materially. Investment property increased by Rs970.5 million to Rs4.152 billion, the June equity-investment balance of Rs1.422 billion fell to nil, and investment held for sale declined by Rs166.2 million to Rs1.353 billion. The summary announcement does not include the notes needed to reconcile these transfers. No gain from a fair-value change in investment property was recorded in the quarter, but readers should wait for the detailed notes before assigning an economic cause to the balance-sheet movement.
Cash flow and earnings quality
Net operating cash outflow widened to Rs316.7 million from Rs10.4 million. There was no material investing cash flow in the current quarter, while financing inflow of Rs309.9 million came from the share issuance. After those movements, cash declined by Rs6.8 million to Rs9.3 million.
The gap between Rs115.8 million of accounting profit and Rs316.7 million of operating cash outflow is the quarter’s biggest quality warning. The filing supports identifying working capital as the arithmetic bridge, particularly the surge in receivables, but it does not disclose customer-level collections, aging or project-specific settlement timing. Those explanations remain unresolved rather than assumed.
Sector and company context
Pace describes its business as building, acquiring, managing and selling condominiums, shopping plazas, supermarkets, housing schemes and other properties. That means revenue can be lumpy across project sales, rentals and property transactions. The filing does not provide a segment or project bridge for this quarter, so the lower sales and higher margin should not be extrapolated mechanically.
The financing environment also remains demanding. The State Bank of Pakistan kept its policy rate at 11.5% on September 14, 2026. That macro backdrop does not prove the cause of Pace’s finance-cost movement, but it increases the importance of the group’s large current liability base and accrued finance cost.
The official PSX company page carries a Risk Warning Alert stating that Pace is in continuous violation of specified listing clauses and may face suspension or delisting-related action. The page does not, in the displayed alert, explain the exact current breach. This is a governance and listing-status risk that deserves monitoring separately from the operating result.
AlphaGen model scores
The following are AlphaGen model outputs, not figures reported by Pace and not investment recommendations:
- Alpha QoQ Score: 64.57
- TTM Performance Score: 83.93
- 3Y Business Perf Score: 79.14
- Sector Leadership Score: 62.50
What to monitor next
- Receivable conversion: whether the Rs1.496 billion trade-debt balance turns into cash and reverses the operating outflow.
- Liquidity management: changes in the Rs5.374 billion current maturity of long-term liabilities, Rs1.081 billion accrued finance cost and the very small cash balance.
- Revenue quality: a project, rental or property-sale split that explains why sales fell while gross margin expanded.
- Associate contribution: whether the Rs70.8 million share of profit recurs and how much of group earnings it represents over a full year.
- Asset reclassification: detailed notes reconciling the rise in investment property and the disappearance of the equity-investment line.
- Listing compliance: any PSX update that clarifies or resolves the Risk Warning Alert.
Bottom line
The quarter delivered a genuine improvement in gross profitability and cost control, but the quality of the final result is mixed. Prior-year other income did not recur, associate income supported current earnings, receivables expanded sharply and operating cash flow was deeply negative. Pace ended the quarter profitable and with higher equity, yet with weaker working capital, minimal cash and substantial current obligations. The next result needs to show cash collection and clearer revenue composition before the margin improvement can be regarded as durable. Until those items improve, the balance sheet remains more important than the headline EPS.
Primary sources
- PACE September 2026 financial-results announcement (PSX)
- PACE company profile, announcements and listing alert (PSX)
- Pace corporate website
- State Bank of Pakistan monetary-policy page
Methodology note: percentage changes, margins, the core operating subtotal, current ratios and working-capital figures are calculated from the company’s published statements. Small differences may arise from rounding. Where the filing does not disclose causality, the analysis identifies the arithmetic effect and states the limitation.