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Pak Agro Packaging Q3 FY26: Record Sales Rebound, but Margin and Cash Conversion Stay Tight

Pak Agro Packaging posted record Q3 sales and higher profit, but nine-month margins weakened and a major inventory build pushed operating cash flow negative.

Sep 21, 2026

Verdict

Pak Agro Packaging’s third quarter ended March 31, 2026 delivered the strongest sales quarter in the company’s history, but the quality of that rebound is mixed. Q3 sales reached about Rs332.58 million, up 21.3% from Rs274.16 million a year earlier, while quarterly profit after tax rose 11.3% to Rs14.95 million. The rebound matters because it followed a weak first half and shows that demand can recover sharply in the company’s seasonally stronger part of the year.

The harder issue is margin and cash conversion. The current quarter’s gross margin, derived from the nine-month filing less the official half-year accounts, was only about 9.6%. For the full nine months, sales were down just 1.5%, yet gross profit fell 17.5% and operating profit fell 16.6%. At the same time, inventory almost doubled from June 2025, advances and deposits increased more than fourfold, and nine-month operating cash flow swung to a Rs90.69 million outflow from a Rs97.95 million inflow. The quarter therefore looks like a real sales rebound operating inside a still-difficult cost and working-capital environment.

Results at a glance

  • Company: Pak Agro Packaging Limited. Ticker: GEMPAPL. Reporting basis: standalone, unaudited interim financial statements for the nine months ended March 31, 2026; the June 30, 2025 statement-of-financial-position comparative is audited.
  • Q3 sales: approximately Rs332.58 million, up 21.3% year on year. Q3 profit after tax: approximately Rs14.95 million, up 11.3%. The company described Q3 sales as the highest quarterly sales in its history.
  • 9MFY26 sales: Rs725.13 million, down 1.5%. Gross profit: Rs77.00 million, down 17.5%. Operating profit: Rs59.12 million, down 16.6%.
  • 9MFY26 profit before tax: Rs46.37 million, down 6.8%. Profit after tax: Rs34.66 million, down 1.9%. EPS: Rs1.73 versus Rs1.77.
  • AlphaGen model outputs — not company-reported figures: Alpha QoQ Score: 86.07; TTM Performance Score: 15.13; 3Y Business Perf Score: 53.86; Sector Leadership Score: 49.93.

What improved

The clearest improvement was the return of sales momentum in Q3. The official nine-month result shows Rs725.13 million of sales, while the half-year accounts reported Rs392.55 million. The difference implies Q3 sales of Rs332.58 million. Against the Rs274.16 million reported in Q3 FY25, that is 21.3% growth. Management says January through March follows the company’s off-season quarter and sales normally begin to recover in this period. This year the rebound was unusually strong and produced a record quarterly revenue figure.

Quarterly net profit also improved. Q3 PAT, again derived from the nine-month and half-year filings, was Rs14.95 million versus Rs13.43 million in the comparable quarter. That 11.3% increase is positive, although it lagged the growth in sales. The gap is important: the company sold substantially more, but every additional rupee of revenue did not translate proportionately into bottom-line growth.

Below the operating line, the nine-month result benefited from lower financial expenses and a lower tax charge. Financial expenses fell 3.1% to Rs15.75 million, while taxation declined 18.9% to Rs11.71 million. Other income of Rs7.43 million also supported the period, compared with no material other-income line in the nine-month comparative. These items helped keep the decline in PAT to only 1.9% even though operating profit fell by more than 16%.

Management also reports a rationalisation of certain back-process machines during the quarter, aimed at strengthening green-shade and fish-net manufacturing and balancing the plant. That is operationally relevant because the company remains significantly below its maximum production capacity and says competitive market conditions and demand are limiting fuller utilisation. The rationalisation may help efficiency, but the filing does not quantify a cost saving or margin benefit yet, so it should be treated as an operational development rather than an established earnings driver.

What weakened / needs attention

Margins remain the central weakness. Nine-month gross margin fell to about 10.6% from 12.7%, a compression of roughly 2.1 percentage points. Operating margin declined to about 8.2% from 9.6%. On a derived Q3 basis, gross margin was about 9.6%, below the already-compressed nine-month average. This means the strong quarterly sales rebound came with weaker gross economics.

Management gives a clear economic explanation. International prices of the company’s main raw materials, including HDPE and colours, rose in dollar terms. The rupee was comparatively stable, but that stability was not enough to offset the increase in imported-input prices. At the same time, management says farmers remained financially constrained and smaller competitors using lower-quality recycled raw material were competing aggressively. The company therefore says it could not fully pass higher direct costs to customers. That combination—input inflation without equivalent pricing power—is consistent with the reported margin compression.

The nine-month numbers show the effect. Sales declined only Rs11.40 million year on year, but gross profit fell Rs16.36 million. In other words, the deterioration in gross profit was larger than the entire decline in revenue. That is why this period should not be read simply as a demand story: cost recovery and product pricing were at least as important as sales volume.

Working capital became the bigger financial story

The balance sheet changed much more dramatically than the income statement. Stock in trade increased to Rs233.31 million at March 31 from Rs120.36 million at June 30, 2025, a rise of about 94%. Within that balance, raw-material-related stock rose sharply: raw material, colours and chemicals together totaled Rs143.83 million versus Rs20.68 million at June. The largest component was core raw material at Rs123.38 million.

Advances, deposits and other receivables also expanded to Rs80.52 million from Rs19.26 million. A major component was margin deposits on letters of credit, which rose to Rs66.37 million from Rs15.52 million. Read together with the inventory build and management’s discussion of imported HDPE and colours, it is reasonable to infer that a significant amount of cash was tied up in the imported-input cycle. That is an inference from the disclosed balances, not a management statement about procurement strategy.

The cash-flow statement makes the consequence explicit. Operating profit before working-capital changes was Rs87.76 million, but working-capital movements absorbed Rs152.89 million. Inventory alone used Rs112.95 million and advances, deposits and other receivables used another Rs61.26 million, partly offset by a reduction in refunds due from government. After tax payments, net cash used in operating activities was Rs90.69 million. In the comparable nine months, operating activities had generated Rs97.95 million.

The company financed that working-capital pressure externally. Financing activities generated Rs79.89 million, including Rs77.68 million of term finance and Rs23.11 million of net short-term bank borrowing, partly offset by lease repayments and other financing outflows. Cash and bank balances consequently ended March at only Rs9.64 million, down from Rs20.34 million at June 2025. The current ratio improved because current assets rose sharply while current liabilities were broadly flat, but much of that improvement sits in inventory and deposits rather than cash. Liquidity therefore looks stronger on the headline current ratio than on cash conversion.

Recurring versus less-recurring drivers

  • Recurring / core: sales of agricultural textile products, packaging bags, green shades and fish nets; imported raw-material costs; production overhead; administrative expenses; and the normal financing burden associated with working capital and fixed assets.
  • Seasonal but core: the Q3 sales recovery. Management says January-March normally follows the company’s off-season quarter, so the rebound is part of the ordinary business cycle even though this quarter reached a record level.
  • Variable: other income. It helped nine-month pre-tax earnings, but it is not the main manufacturing earnings stream and should not be assumed to repeat at the same level.
  • Balance-sheet dependent: finance cost. The nine-month expense declined modestly despite a much larger financing footprint by March. The next result will show how the new term finance and working-capital borrowing feed through to the income statement.

Sector and macro context

Pakistan’s broader agriculture sector was not uniformly weak in FY26. The Pakistan Economic Survey 2025-26 reports agriculture growth of 2.89%, with the crop subsector up 1.44% and important crops up only 0.65%. Wheat, rice and sugarcane improved, while cotton and maize declined. This supports a picture of recovery at the aggregate level, but it does not contradict Pak Agro’s comments about constrained farmer purchasing power. The company sells specialised agricultural inputs and packaging products, so its demand can depend on customer liquidity and crop economics rather than headline agricultural GDP alone.

The exchange-rate evidence is also consistent with management’s description. The Economic Survey says the rupee averaged about Rs280.65 per US dollar in FY26 versus Rs279.35 in FY25, a marginal depreciation of roughly 0.5%, while an SBP conversion rate for settlement on March 31, 2026 was Rs279.153 per US dollar. A relatively stable currency reduces one source of imported-cost volatility, but it cannot protect margins when the dollar prices of HDPE, colour inputs, freight or other imported components rise.

Interest rates were more supportive during the reporting period than a year earlier. SBP kept the policy rate at 10.5% on March 9, 2026, compared with 12% in March 2025. After the reporting date, however, SBP raised the policy rate to 11.5% effective April 28. Given Pak Agro’s larger financing requirement at March, that post-period reversal makes borrowing cost a more important variable for the next result cycle. The exact impact will depend on facility pricing and utilisation, which the company has not guided.

What changed versus the recent pattern

The recent pattern is no longer simply weak demand. The first half was characterised by lower sales, depressed agricultural demand and management’s efforts to control overhead and borrowing. Q3 changed the revenue picture decisively: sales rebounded to a record level. What did not change was the cost problem. The nine-month gross margin remained well below the prior year, and the Q3 gross margin was even lower than the nine-month average. The business therefore moved from a first-half demand problem toward a second-half test of whether higher volumes can restore margin.

The other major change is financial intensity. At June 2025, the company carried a much smaller inventory and deposit position. By March 2026 it had substantially more raw material, much more money posted against letters of credit, new term finance and higher short-term borrowing. That may support sales availability in the stronger season, but it also raises the hurdle for cash conversion. A good next quarter would therefore need more than revenue growth: it would need inventory and deposits to turn into sales, receivables and ultimately cash without another large increase in financing.

What to monitor next

  • Whether Q4 sales build on the record Q3 level or whether the rebound was mainly seasonal.
  • Gross margin, particularly whether higher sales volumes can offset elevated HDPE, colour and other imported-input costs.
  • Inventory conversion: the Rs233.31 million stock balance, especially the large raw-material component, should begin translating into sales and cash rather than continuing to build.
  • Letter-of-credit margin deposits and other advances, which absorbed significant liquidity during the nine months.
  • Operating cash flow after working-capital movements and tax, not only accounting profit.
  • Finance cost after the addition of term finance and the post-period increase in SBP’s policy rate.
  • Capacity utilisation and whether the back-process rationalisation for green shades and fish nets produces measurable operating benefits.

Bottom line

Pak Agro Packaging’s Q3 FY26 sales rebound is meaningful: revenue grew more than 21% year on year and reached a company record, while quarterly PAT increased about 11%. But the nine-month result shows why the recovery is not yet complete. Gross margin compressed by roughly two percentage points, operating profit fell 16.6%, and a very large inventory and deposit build turned operating cash flow deeply negative. Management’s explanation—higher international HDPE and colour prices, limited pricing power with financially constrained farmers, and aggressive low-cost competition—fits the reported economics. The next result should be judged on whether record sales can translate into better gross margin and, crucially, whether the working-capital build starts converting back into cash.

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