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Pakistan Oxygen H1 2026: Margin Expansion Meets a Cleaner Balance Sheet

Pakistan Oxygen’s H1 sales grew 22% and core margins expanded sharply as finance costs fell, though receivables and a one-off disposal gain temper the headline.

Sep 18, 2026

Verdict: Pakistan Oxygen’s H1 2026 result was strong in both growth and operating quality, but not every part of the earnings jump should be annualized. Net sales rose 21.7% year on year to Rs7.39 billion, gross margin expanded by 6.3 percentage points to 44.0%, and operating profit before other income rose 38.0%. Lower finance cost added another meaningful tailwind. However, Q2 also included a Rs214.6 million gain on disposal of the CO2 plant, while operating cash flow fell despite the surge in profit because receivables absorbed cash and tax payments rose sharply. The central takeaway is therefore positive but more nuanced than the 86.6% increase in H1 PAT: the underlying core business improved materially, balance-sheet liquidity strengthened, and borrowings fell, while cash conversion and the durability of the unusually high margin level now become the key tests for the next result. Official H1 report

Results at a glance

Company Name: Pakistan Oxygen Limited

Ticker: PAKOXY

Reporting period: six months ended June 30, 2026, including separately presented Q2 figures for the three months ended June 30, 2026. These are standalone condensed interim financial statements. The company’s wholly owned subsidiary, BOC Pakistan (Private) Limited, is inactive and the company has an SECP exemption from consolidation for the current year. The half-year financial statements are unaudited but were subjected to a limited-scope review under ISRE 2410; the statutory auditor explicitly states that the three-month Q2 profit-and-loss and comprehensive-income figures were not reviewed. Official H1 report

Alpha QoQ Score: 100

TTM Performance Score: 100

3Y Business Perf Score: 92.28

Sector Leadership Score: 67.49

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

  • Net sales: Rs7.386bn in H1 2026, up 21.7% YoY; Q2 sales were Rs3.772bn, up 20.8%.
  • Gross profit: Rs3.249bn in H1, up 41.8%; gross margin rose to 44.0% from 37.7%.
  • Operating profit before other income: Rs2.481bn, up 38.0%.
  • PAT: Rs1.682bn, up 86.6%; Q2 PAT was Rs991.9m, up 94.4%. EPS was Rs19.31 for H1 versus Rs10.35 a year earlier.
  • Finance cost: Rs152.2m, down 48.3%. Operating cash flow: Rs1.348bn, down 22.4%, despite much higher accounting profit.
  • Interim payout: the board announced nil cash dividend, nil bonus shares and nil rights issue. PSX result announcement

What improved

The strongest improvement was not simply sales growth; it was the conversion of that sales growth into much better gross economics. Net sales increased by Rs1.315bn year on year, while gross profit rose by Rs958m. That pushed gross margin to almost 44% from 37.7%, a 6.3 percentage-point expansion. Management attributed the improvement to higher volumes, production efficiencies, pricing initiatives and disciplined cost management. Importantly, this was visible even in Q2 on its own: the quarter’s gross margin was 44.4% versus 41.5% in Q2 2025. Official H1 report

Demand was broad enough to matter. Management said Healthcare revenue grew 24%, Welding grew 18%, and Hydrogen sales increased 25% on higher offtake. The segment accounts provide an additional quality check: net sales from industrial, medical and other gases rose to Rs6.462bn from Rs5.272bn, while Welding and Others rose to Rs924m from Rs799m. The gases segment therefore remained the dominant economic engine. Directors’ review and segment disclosure

Financing also improved significantly. H1 finance cost fell to Rs152.2m from Rs294.6m, and Q2 finance cost was less than half the prior-year quarter. Management tied this to better working-capital management and optimized financing. The balance sheet supports the deleveraging point: short-term borrowings fell to Rs585.5m at June from Rs1.632bn at December, while long-term financing declined modestly. Cash and cash equivalents, after netting running finance, moved to a positive Rs718.5m from a negative Rs331.1m at the start of the period. Official H1 report

What weakened / needs attention

The clearest weak point was cash conversion. Net operating cash flow declined to Rs1.348bn from Rs1.737bn even though PAT almost doubled. Cash generated from operations before finance costs and taxes was Rs2.156bn, slightly below the prior year. The biggest reason was an Rs800.1m working-capital outflow, driven chiefly by an Rs839.7m increase in trade debts during the half. Cash-flow statement and working-capital note

The balance sheet shows the same issue from another angle. Trade debts rose to Rs3.037bn from Rs2.197bn at December, an increase of roughly 38%. Receivables therefore grew much faster than the half-year sales growth rate. This does not by itself prove collection stress—the timing of customer billing can matter—but it does mean the next result should show whether the build reverses or becomes a persistent use of cash. Statement of financial position

Overheads also rose faster than sales. Distribution and marketing expense increased to Rs304.9m from Rs162.5m, administrative expense rose to Rs250.2m from Rs199.8m, and other operating expenses rose to Rs212.8m from Rs130.2m. Management attributes part of the increase to higher WPPF and WWF linked to profitability, as well as inflation and customer-service costs. The gross-margin expansion was strong enough to absorb this, but operating discipline remains important if margins normalize. Official H1 report

Revenue mix: core gases did the heavy lifting

The operating mix is more informative than the total top line alone. Industrial, medical and other gases generated Rs6.462bn of H1 net sales, about 87% of the total, up 22.6% year on year. Their segment result rose to Rs2.528bn from Rs1.686bn, an increase of about 50%. Segment disclosure

Welding and Others grew net sales by about 15.7% to Rs924m, but its segment result fell to Rs165m from Rs242m. The segment disclosure shows cost of sales in Welding and Others rising much faster than revenue. That means the company-level margin expansion was disproportionately carried by gases rather than being equally distributed across businesses. For the next result, investors should distinguish continued volume growth from the mix of profit contribution. Segment disclosure

Management’s qualitative commentary is consistent with that picture: Healthcare and Hydrogen were highlighted as major growth areas, while Welding demand improved but did not translate into the same segment-profit momentum. The durability of gas-sector pricing, volume and efficiency gains is therefore more important than the headline sales growth alone.

Margin quality: strong core improvement, plus one visible one-off

Reported H1 operating profit rose 49.3% to Rs2.715bn, but this line contains a material non-recurring item. Other income jumped to Rs233.8m from Rs19.8m, and the notes disclose a Rs214.641m gain on disposal of the CO2 plant in Q2. That gain accounted for most of the increase in other income. Official H1 report

The cleanest way to judge core performance is therefore to look one line higher. Operating profit before other income increased 38.0% to Rs2.481bn. That is still a powerful improvement and confirms that the result was not dependent on the disposal gain. As a simple analytical bridge—not a company-defined adjusted measure—subtracting the Rs214.6m disposal gain from H1 profit before levy and tax leaves about Rs2.35bn, which would still be roughly 54% above the comparable Rs1.523bn.

Q2 tells a similar story. Sales grew 20.8%, gross profit rose 29.3%, and operating profit before other income increased about 24.1%. The disposal gain then lifted reported Q2 operating profit and pretax profit further. That distinction matters when setting expectations for Q3: the core operating base has improved, but the Q2 other-income contribution should not be repeated mechanically. Q2 profit-and-loss statement

Finance cost and tax: a real financing benefit, but tax still matters

Lower finance cost was a genuine recurring improvement during H1. The company paid Rs151.1m of finance cost in cash versus Rs302.8m in the prior-year half, broadly consistent with the accounting finance-cost decline. The financing backdrop was not uniformly easier: SBP had raised the policy rate to 11.5% in April and kept it there in June. That makes the company’s lower financing bill more attributable to its reduced borrowing requirement and financing mix than to a simple fall in benchmark rates. SBP June 2026 Monetary Policy Statement

Profit before levy and tax increased 68% to Rs2.563bn according to management. The prior-year half also carried a Rs33.3m minimum-tax differential levy that did not recur in H1 2026. Income tax for H1 was Rs880.8m, including Rs214m of super tax; management reported an effective tax rate of 34%. PAT therefore rose faster than pretax profit, reaching Rs1.682bn. Tax is not a trivial footnote here: future earnings comparisons should separate operating progress from changes in levy, super-tax and effective tax rate. Official H1 report

Cash flow, debt and liquidity

The balance sheet improved materially in liquidity terms. Current assets rose to Rs7.022bn while current liabilities fell to Rs4.215bn, taking the current ratio to roughly 1.67x from 1.26x at December. Short-term borrowings fell by more than Rs1.0bn, and the company ended June with Rs1.304bn of cash and bank balances. After netting running finance, cash and cash equivalents were Rs718.5m, a major swing from the opening net overdraft. Official H1 report

That improvement came even as the company continued investing. Capital expenditure on property, plant and equipment was Rs460.9m during H1, up from Rs273.3m a year earlier. The company also reported Rs284.7m of outstanding capital commitments at June. Proceeds from disposal of PPE were Rs273.9m, mostly related to the CO2 plant disposal that also generated the accounting gain. Cash flow and commitments

The caveat is that working capital consumed Rs800.1m. Inventory actually fell to Rs748.0m from Rs804.1m, so the problem was not stock accumulation; it was principally receivables. Operating cash flow after finance cost and taxes was still a healthy Rs1.348bn, but it covered accounting profit less comfortably than in the prior period. If collections normalize, the combination of lower borrowings and strong margins could translate into better free cash generation. If receivables continue to climb, some of the earnings quality improvement will remain trapped in working capital.

Sector and macro context

Pakistan Oxygen’s H1 growth occurred against a recovering but uneven industrial backdrop. PBS subsequently reported that overall Large-Scale Manufacturing grew 4.98% in FY2025-26, although June output itself was down 3.48% year on year. That is directionally consistent with management’s description of a broader recovery that was not uniform across sectors. PBS June 2026 LSM release

The company’s 21.7% sales growth therefore materially outpaced aggregate LSM growth, but the mix matters because Pakistan Oxygen also serves healthcare and other non-LSM end markets. Management specifically attributed Healthcare growth to sustained medical-gas demand and Hydrogen growth to higher customer offtake. These are company disclosures rather than assumptions from the macro data.

The financing environment also remained tight. SBP kept the policy rate at 11.5% in June after the April increase. Against that backdrop, Pakistan Oxygen’s near-halving of finance cost is best read as a company-specific balance-sheet achievement rather than a macro windfall. SBP June statement

Recurring versus exceptional earnings drivers

The recurring-positive bucket includes higher core sales volumes, pricing and production-efficiency gains, better cost control, lower borrowing needs, and the broad growth in Healthcare, Hydrogen and Welding sales. These are the drivers that need to persist for the new earnings level to be sustainable.

The exceptional bucket is clearer: the Rs214.6m gain on disposal of the CO2 plant is a one-off and should not be extrapolated. The absence of the prior-year minimum-tax differential levy also helped the comparison, while the effective tax burden can move with tax law and profit mix. Higher WPPF and WWF are linked to profitability and may persist while earnings remain elevated, so they are better viewed as semi-variable operating costs than one-offs. Official H1 report

The result therefore has a strong underlying core, but the clean run-rate is below the reported Q2 profit because reported profit includes the disposal gain. At the same time, underlying profit is still materially above the prior-year base even after stripping that gain.

What to monitor next

  • Receivables and operating cash conversion. Trade debts rose much faster than sales and were the largest working-capital drain. A reversal would strengthen the quality of earnings; another large increase would weaken it.
  • Gross-margin durability. Management credits volume, efficiency, pricing and cost discipline, but Q2’s 44.4% margin is a high base. The next quarter will show whether this is becoming structural or partly reflects favorable timing and mix.
  • Profit mix between gases and Welding. The gases segment produced the bulk of segment-profit growth, while Welding’s segment result weakened despite higher revenue. A healthier contribution from Welding would broaden the earnings base.
  • Finance cost and debt. The large reduction in short-term borrowings has already lowered the financing burden. Preserving positive net cash-equivalent liquidity while funding capital expenditure would make that benefit more durable.
  • Normalize Q2 for the CO2 plant disposal gain when comparing future quarters. The core operating result was strong without it, but the reported Q2 PAT base is flattered by a non-recurring gain.
  • Capital allocation. The board declared no interim cash dividend, bonus shares or rights issue with the H1 result. With liquidity improving and planned capital expenditure continuing, the next decisions will indicate how management balances reinvestment, deleveraging and shareholder distributions.

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