Service Industries Limited Analysis - March 2026 Quarter

Executive Summary

Service Industries Limited delivered a very strong 1QCY26 performance, with consolidated revenue rising 30% YoY to Rs. 42.24 billion and net profit after tax surging 199% YoY to Rs. 5.05 billion. The result was led by the tyre business, where Service Long March Tyres continued scaling rapidly, while footwear remained margin-resilient despite muted sales. The most important ongoing development is SLM’s IPO process and its planned expansion into Passenger Car Radial tyres, which can materially reshape the group’s earnings base. The company is now increasingly moving from a legacy footwear-led group toward a tyre-led industrial growth platform.

Current Developments

Strong consolidated earnings growth

Service Industries’ 1QCY26 consolidated performance showed a major improvement across the income statement:

• Revenue increased 30% YoY to Rs. 42.24 billion.
• Gross profit increased 54% YoY to Rs. 11.43 billion.
• Operating profit increased 80% YoY to Rs. 6.96 billion.
• Net profit after tax increased 199% YoY to Rs. 5.05 billion.
• Consolidated EPS rose to Rs. 64.17 from Rs. 26.60 last year.

The performance was not just topline-led. Margins improved meaningfully, especially in tyres, while finance cost declined from Rs. 1.44 billion to Rs. 992 million, supporting bottom-line expansion.

Tyre segment has become the main earnings engine

The tyre segment was the standout performer in the quarter:

• Net sales increased 45% YoY to Rs. 31.39 billion.
• Gross profit rose sharply to Rs. 7.90 billion from Rs. 4.12 billion.
• Segment profit before tax increased to Rs. 5.97 billion from Rs. 2.81 billion.

This confirms that Service Industries’ earnings mix is increasingly being dominated by tyres rather than footwear. The segment is benefiting from scale, local market penetration, export growth, and better operating leverage.

Service Long March Tyres IPO is the biggest ongoing catalyst

The key online development after the reported quarter is that Service Long March Tyres has moved ahead with its IPO process. PSX’s PRIDE portal shows that SLM filed its listing application on April 10, 2026, with the listing status shown as pending at the time of the PSX page update.

Business Recorder reported that SLM planned to raise up to Rs. 7.8 billion through the IPO by offering 389.7 million ordinary shares at a floor price of Rs. 14.25 per share, representing a 5% post-listing stake. The same report stated that proceeds are linked to the company’s expansion plans, including the Passenger Car Radial tyre project.

Pakistan Today / Profit also reported the same IPO size and highlighted that the funds would support a Rs. 22.5 billion tyre project.

SECP and PSX approvals improve visibility

A subsequent SECP-linked update showed that the regulator approved issuance and publication of SLM’s IPO prospectus.

Mettis Global also reported that SLM received PSX approval and announced its IPO as part of its next growth phase, specifically tied to entry into the Passenger Car Radial tyre segment.

This matters because the IPO is no longer just a management intention mentioned in the quarterly report. It has progressed into a formal capital-market event with regulatory and exchange-level movement.

Auto market recovery supports future tyre demand

Pakistan’s auto sector recovery is another important external development for Service Industries. Geo reported that passenger car sales for 9MFY26 rose 45% YoY to 109,655 units, compared with 75,397 units in the same period last year.

The Express Tribune, citing Topline Securities, reported that year-on-year growth in car sales was supported by new entrants, lower interest rates, easing inflation, and improving macroeconomic sentiment.

For Service Industries, this is strategically relevant because SLM’s planned PCR tyre expansion is directly linked to passenger vehicle demand. If auto sales continue recovering, the PCR project could enter the market at a favorable point in the cycle.

Future Outlook

Earnings outlook remains constructive

The company’s near-term outlook remains positive because the tyre business is now operating at scale and showing strong margin expansion. If demand remains intact, Service Industries can continue benefiting from:

• Higher domestic tyre volumes
• Growing exports
• Reduced finance cost pressure
• Better absorption of fixed manufacturing costs
• Stronger subsidiary dividend flows

The quarterly report already highlights that Service Industries received Rs. 800 million dividend income from Service Tyres during 1QCY26, while Service Global Footwear’s board had also recommended a final cash dividend that would increase dividend income by Rs. 310 million in the next quarter.

SLM valuation and growth ambition raise the strategic ceiling

Business Recorder reported that SLM was valued around $550 million based on its upcoming IPO price range, while management targeted transforming it into a $1 billion company within two years through expansion, exports, and capacity enhancement initiatives.

This adds an important valuation angle for Service Industries. If SLM lists successfully and maintains strong profitability, the market may begin valuing Service Industries more as a holding company with a high-growth tyre asset rather than only as a traditional footwear and rubber products business.

Export story is becoming more visible

Dawn reported that Pakistan has emerged among the top 10 exporters of truck and bus radial tyres to key global markets including the United States and Brazil, with Service Long March Tyres recording strong export growth across the US, Brazil, South Africa, and Egypt.

This development strengthens the long-term outlook because exports can provide:

• Natural hedge against PKR weakness
• Higher capacity utilization
• Diversification away from domestic cyclicality
• Stronger foreign currency revenue base
• Better scale economics

Macro environment remains mixed but improving in pockets

Management’s own report flags inflation, exchange-rate pressure, energy costs, and KIBOR volatility as major concerns.

However, online auto-sector coverage indicates that lower interest rates and improving sentiment have started supporting vehicle demand. This is important for tyres because replacement demand and OEM-linked demand both tend to improve when the broader auto cycle recovers.

Growth Plans

Passenger Car Radial tyre expansion

SLM’s planned entry into Passenger Car Radial tyres is the most important growth initiative for the group. The quarterly report specifically states that SLM has announced strategic expansion into PCR tyres as a step toward business diversification and enhanced market penetration.

Business Recorder separately reported that in January, the Chinese partner approved an $80 million investment to establish a PCR tyre manufacturing facility in Nooriabad, Sindh.

This is significant because PCR tyres open a much larger consumer-facing market beyond truck and bus radial tyres. If executed well, the project can:

• Expand SLM beyond commercial vehicle tyres
• Capture import substitution opportunity
• Improve product diversification
• Benefit from recovering car sales
• Increase the long-term addressable market

IPO proceeds to support expansion

SLM’s IPO proceeds are expected to support its growth plans. Profit reported that SLM planned 389.7 million shares at a Rs. 14.25 floor price, with proceeds supporting a Rs. 22.5 billion tyre project.

For Service Industries, this is strategically useful because equity funding can reduce pressure on group leverage while giving SLM independent access to capital markets.

Capacity enhancement and export-led scale

Management’s pre-IPO messaging suggests that SLM is targeting aggressive expansion through exports and capacity enhancement. Business Recorder reported management’s ambition to scale SLM toward a $1 billion company within two years.

The export opportunity is already becoming visible, with Dawn reporting strong export growth in major markets such as the US and Brazil.

Footwear margin stabilization

The footwear segment is not currently the main growth driver, but it remains strategically important. During 1QCY26, footwear revenue was broadly flat, but gross profit improved due to procurement discipline and cost control.

This suggests that management is protecting profitability even in a softer consumer environment. Over time, any improvement in domestic purchasing power could revive topline growth in the footwear business.

Risk Assessment

IPO execution and market sentiment risk

SLM’s IPO is a major catalyst, but it also introduces execution risk. If market conditions weaken, pricing, subscription levels, or post-listing performance could affect investor perception of Service Industries.

The IPO is sizeable, with media reports indicating expected proceeds of up to Rs. 7.8 billion.

PCR project execution risk

The PCR expansion can be transformational, but it carries risks:

• Large capital requirement
• Technology transfer and execution complexity
• Competition from imports and established brands
• Need for distribution strength in passenger tyres
• Risk of demand slowdown if auto recovery weakens

The opportunity is large, but the company must execute capacity, quality, branding, and pricing correctly.

Working capital risk

The quarterly accounts show a material increase in trade debts and advances at the consolidated level. Trade debts increased to Rs. 22.97 billion from Rs. 16.97 billion at December 2025.

This may be normal during rapid sales growth, but it needs monitoring because rising receivables can reduce operating cash conversion.

Currency and raw material exposure

The group remains exposed to imported raw materials, freight costs, and exchange-rate movement. The report also shows outstanding foreign currency forward contracts of Rs. 4.02 billion.

Currency volatility can affect margins, especially in tyres where natural rubber, synthetic rubber, carbon black, chemicals, and machinery-linked inputs can have import exposure.

Interest-rate and leverage sensitivity

Although finance cost declined during the quarter, the group still carries significant borrowings. Short-term borrowings reduced sharply to Rs. 30.81 billion from Rs. 54.18 billion, which is positive, but financing cost remains an important earnings sensitivity.

If KIBOR rises again, profitability could face renewed pressure.

Segment concentration risk

The tyre business is now contributing most of the group’s incremental profitability. This is positive while the cycle is favorable, but it also means Service Industries’ earnings quality is increasingly linked to:

• Tyre demand
• Export pricing
• Raw material costs
• SLM execution
• Regulatory and import-duty environment

A slowdown in tyres would have a much larger impact on the group than in previous years.

Strategic Significance

Service Industries is undergoing a major strategic transition. The company is no longer just a footwear-led brand with diversified investments; it is becoming a tyre-led industrial growth group with a potentially valuable listed subsidiary structure.

The strategic importance can be summarized as follows:

• SLM IPO can unlock hidden value inside Service Industries.
• PCR expansion can move the group into a larger consumer tyre market.
• Export growth can turn SLM into a foreign-currency earning industrial platform.
• Lower borrowing and improved profitability strengthen the balance sheet.
• Footwear remains a stable legacy brand, but tyres are now the core growth story.

The most important takeaway is that Service Industries’ investment case is increasingly tied to the success of Service Long March Tyres. The 1QCY26 financial performance already shows how powerful the tyre segment has become, while the IPO, PCR expansion, and export momentum create the possibility of a structurally higher earnings base over the next few years.