Verdict
The Searle Company Limited (PSX: SEARL) delivered a much stronger operating year in FY2026, but the quality of the headline profit depends on using the right reporting basis. On the audited consolidated accounts for the year ended June 30, 2026, revenue rose 28.7% to PKR 36.81 billion, gross margin expanded to 51.98%, reported operating profit increased 43.4% to PKR 5.29 billion and finance cost nearly halved. Those are genuine improvements in the core pharmaceutical business.
The bottom line was far less impressive. A PKR 993 million goodwill impairment and a PKR 3.64 billion tax charge reduced consolidated profit after tax to PKR 535.7 million. Profit attributable to shareholders was PKR 440.4 million, or PKR 0.75 per share. This was a return to profit from the prior year's consolidated loss, but it was not the PKR 4.00 billion profit or PKR 6.81 EPS shown by the standalone company.
That gap is crucial. The standalone accounts include a PKR 3.9 billion one-off gain from transferring biological brands and marketing rights to a group subsidiary. Because it was an intra-group transaction, the gain was eliminated in consolidation. The consolidated result is therefore the cleaner basis for judging performance and shareholder economics.
Results at a glance
- Reporting basis: audited consolidated financial statements for the year ended June 30, 2026; figures are in Pakistani rupees unless stated otherwise.
- Revenue: PKR 36.81bn, up 28.7% from PKR 28.60bn.
- Gross profit: PKR 19.14bn, up 36.0%; gross margin rose 278 basis points to 51.98%.
- Reported profit from operations: PKR 5.29bn, up 43.4%, after a PKR 993m goodwill impairment.
- Profit before income tax: PKR 4.18bn, up 172.8% from PKR 1.53bn.
- Profit after tax: PKR 535.7m, versus PKR 807.4m from continuing operations last year and a PKR 1.37bn total loss after discontinued operations.
- Owners' profit and EPS: PKR 440.4m and PKR 0.75; prior-year continuing EPS was PKR 1.34, while total restated EPS was a loss of PKR 2.38.
- Cash dividend: PKR 1.00 per share, equal to 10% of par value.
What improved
Growth was broad enough to lift both sales and gross profit. Management attributes the 29% revenue increase to improved product availability, a more efficient supply chain and focused commercial execution. It also points to the launches of Rexeva (denosumab) and Xavy (tirzepatide), and to an expansion in toll manufacturing that improved capacity utilisation and added a revenue stream. These are management's stated drivers; the accounts do not separately quantify price, volume, product mix or the contribution of each launch.
Gross profit grew faster than revenue: 36.0% versus 28.7%. Gross margin improved from 49.20% to 51.98%, a 2.78 percentage-point expansion. This means the group retained about PKR 52 of gross profit from each PKR 100 of sales, compared with about PKR 49 a year earlier. Better product availability and supply-chain execution are consistent with that result, but the filing does not provide a precise bridge between pricing, sourcing, mix and manufacturing efficiency.
Reported profit from operations rose to PKR 5.29bn from PKR 3.69bn even after the impairment charge. Before the PKR 993m goodwill impairment, the operating subtotal would have been about PKR 6.29bn. That is not a reported IFRS line and should be treated only as a way to isolate the non-cash impairment from the year's trading result.
Financing was another clear positive. Finance cost fell 47.9% to PKR 1.09bn. The directors link this to tighter working-capital management and rationalisation of the borrowing portfolio. The note shows a particularly large reduction in financing under Islamic modes, while short-term borrowing mark-up also fell. Consequently, the improvement below operating profit was stronger than the operating increase: profit before income tax climbed to PKR 4.18bn from PKR 1.53bn.
Cash generation also moved in the right direction, although it remained thin relative to accounting profit. Net cash from operating activities was PKR 428.3m, reversing a PKR 1.75bn outflow. Cash generated before finance costs, taxes and other operating payments was PKR 3.97bn. The group ended the year with PKR 2.47bn of cash and bank balances, versus PKR 399m a year earlier. After including the PKR 400m short-term investment and deducting running finance, cash equivalents were positive PKR 1.58bn versus negative PKR 896m.
What weakened / needs attention
The tax charge absorbed most of the pre-tax profit. Against PKR 4.18bn of profit before income tax, SEARL recorded PKR 3.64bn of income-tax expense—an effective burden of roughly 87%. The reconciliation identifies PKR 1.17bn from derecognising part of a deferred tax asset on capital losses, PKR 581m of super tax and PKR 495m of prior-year charges, in addition to the normal tax calculation. The deferred-tax derecognition is non-cash, but it is still an important warning that not all accumulated tax benefits are currently judged recoverable.
The PKR 993m goodwill impairment is the second major qualification. Management says it followed a reassessment of businesses outside the core pharmaceutical operation that are more exposed to discretionary consumer spending. Pressure on household budgets led those businesses to perform below earlier expectations. The charge is non-cash, but it signals that prior capital allocated outside the core portfolio has not earned the return originally expected.
Operating expenses also expanded. Distribution cost increased 28.7% to PKR 11.21bn, broadly matching revenue growth, while administrative expense was nearly flat at PKR 2.03bn. Within distribution cost, advertising and promotion rose to PKR 1.89bn from PKR 1.29bn, travelling to PKR 1.51bn from PKR 1.16bn, personnel training to PKR 395m from PKR 115m and sales bonuses to PKR 797m from PKR 549m. These investments may support product launches and commercial reach, but they create a higher cost base that future growth must justify.
Working capital consumed a large amount of cash. Inventories increased 43.4% to PKR 7.53bn, faster than revenue. Trade receivables rose 6.4% to PKR 12.35bn, while loans and advances more than doubled to PKR 1.74bn. The cash-flow reconciliation shows a PKR 4.09bn use from current assets, only partly offset by a PKR 747m increase in current liabilities. That is why PKR 7.32bn of profit before working-capital changes translated into only PKR 3.97bn of cash generated from operations before interest and tax.
Debt did not fall materially despite the lower finance charge. Short-term borrowings were PKR 7.85bn, almost unchanged from PKR 7.86bn, and long-term borrowings increased modestly to PKR 127m. The improvement in finance cost therefore reflects cheaper or better-structured funding and working-capital discipline more than balance-sheet deleveraging. Sustaining that benefit will depend on refinancing conditions and the ability to contain inventory and receivables.
Standalone versus consolidated: why the distinction matters
The standalone parent reported PKR 31.64bn of revenue, PKR 16.75bn of gross profit, PKR 4.00bn of profit after tax and PKR 6.81 EPS. Those numbers are valid for the legal parent but are not the same as the group result. Standalone other income reached PKR 4.54bn, mainly because the parent transferred biological brands and associated rights to Searle Biopharma. The board explicitly says the PKR 3.9bn gain was eliminated in full on consolidation.
On the group accounts, other income was only PKR 833.6m. Consolidated profit after tax was PKR 535.7m, and PKR 440.4m was attributable to owners after non-controlling interests. Investors comparing SEARL across years should therefore use consolidated revenue, profit and EPS and treat the standalone gain as a reorganisation within the group, not external value creation.
Balance sheet and capital allocation
Liquidity improved on conventional measures. Current assets rose to PKR 29.87bn against current liabilities of PKR 16.89bn, producing a current ratio of about 1.77 times. Cash and bank balances rose sharply, while total equity increased to PKR 34.34bn from PKR 32.89bn. The increase in cash, however, was helped by PKR 2.47bn received as deferred consideration on the earlier disposal of a subsidiary. Investing cash inflow was PKR 2.12bn after capital expenditure and other investment spending, so the year-end liquidity improvement was not generated by operations alone.
The board recommended a PKR 1.00-per-share cash dividend. Based on owners' EPS of PKR 0.75, the proposed cash distribution exceeds current-year consolidated earnings per share. That does not automatically make it unsustainable—cash on hand and distributable reserves also matter—but it raises the importance of converting future earnings into cash and avoiding another large working-capital build.
AlphaGen model scores
The following are AlphaGen model outputs, not company-reported financial measures or investment recommendations:
- Alpha QoQ Score: 11.29
- TTM Performance Score: 87.56
- 3Y Business Perf Score: 69.68
- Sector Leadership Score: 31.69
The contrast between the low quarterly score and high trailing score is consistent with a strong full-year operating recovery whose final-period profitability was weighed down by year-end impairment and tax adjustments. That interpretation is an inference from the reported accounts; the score construction itself is model-driven.
What to monitor next
First, watch whether gross margin holds near 52%. The FY2026 expansion was a major earnings driver, but the annual report does not quantify the separate contribution from pricing, product mix, input costs and manufacturing efficiency. Sustained margin would provide stronger confirmation that the improvement is structural.
Second, track inventories, advances and operating cash flow. Revenue growth accompanied by a 43% inventory increase is a decision-relevant imbalance. Better product availability can require inventory investment, but the next results should show whether stock levels normalise and whether receivables and advances release cash.
Third, test the durability of lower finance cost. Borrowings were broadly flat, so another year of lower charges will depend on funding rates, facility mix and disciplined working capital rather than a large reduction in principal.
Fourth, look for recovery in the non-core businesses that triggered the PKR 993m impairment. The impairment does not consume cash now, but it is evidence that some acquired assets underperformed. Any further impairment or restructuring would dilute otherwise improving pharmaceutical operations.
Finally, separate reported tax from cash tax and recurring tax. FY2026 included a large deferred-tax asset derecognition and prior-year items. A more normal tax bridge would allow more of the operating improvement to reach shareholders, while repeated exceptional tax charges would keep consolidated EPS subdued.
Bottom line
SEARL's FY2026 accounts show a real operational recovery: faster sales, wider gross margin, stronger reported operating profit, sharply lower finance cost, positive operating cash flow and a return to consolidated profitability. The recovery is not yet clean. Goodwill impairment, an unusually heavy tax charge and a large working-capital build kept shareholder earnings and cash conversion modest.
The most defensible reading is therefore constructive on the core business but cautious on earnings quality. The next step is not simply more revenue; it is proving that margin, cash conversion and consolidated EPS can improve without relying on intra-group gains, deferred consideration receipts or exceptional tax movements.
Primary sources
The Searle Company Limited: Annual Report 2026
The Searle Company Limited: investor information and financial reports