Shahzad Textile Mills Limited closed the year ended June 30, 2026 with a genuine operating recovery: revenue reached a record Rs12.34 billion, gross margin widened sharply and net profit rose 62.9%. The catch is cash quality. Inventory and receivables absorbed most of the operating improvement, capital expenditure jumped, and cash fell by Rs169.3 million. The result is stronger than FY2025, but it is not yet a clean, cash-backed turnaround.
Results at a glance
- Reporting basis: audited, company-only annual financial statements for the year ended June 30, 2026, with FY2025 comparatives.
- Net sales: Rs12.342 billion, up 8.5% from Rs11.371 billion.
- Gross profit: Rs1.059 billion, up 52.3%; gross margin improved to 8.58% from 6.11%.
- Operating profit: Rs486.4 million, up 155.3%; operating margin rose to 3.94% from 1.68%.
- Profit after tax: Rs257.4 million, up 62.9%; EPS increased to Rs14.32 from Rs8.79.
- Net cash used in operating activities: Rs12.4 million, versus Rs335.6 million generated in FY2025.
- Dividend: none recommended for FY2026.
The opening verdict
The best part of the result is the income statement’s operating core. Cost of sales rose only 4.9% while revenue increased 8.5%, so gross profit expanded much faster than sales. That operating leverage added 247 basis points to gross margin. Selling and administrative expenses increased 13.4%, faster than revenue, but the gross-profit gain was large enough for operating profit to more than double and for operating margin to add 227 basis points.
This matters because FY2025’s profit depended more heavily on non-operating support. In FY2026, other income fell 57.8% to Rs91.0 million and the share of profit from the associate dropped 67.3% to Rs26.7 million. Other operating expenses also rose to Rs59.2 million from Rs18.7 million. Despite those headwinds, profit before levy and taxation still increased 30.0% to Rs456.6 million. The recovery therefore came principally from the mills’ own operating line, not from larger incidental gains.
What improved
Production recovered in both businesses. Yarn output increased 15.3% to 40.88 million kilograms, lifting implied utilization to about 98.0% from 84.9% on unchanged stated capacity. Socks output increased 10.4% to 1.59 million dozen pairs, taking utilization to 66.4% from 60.2%. The audited notes say remaining underutilization reflects lower demand; that qualification is most relevant to socks, where one-third of stated capacity remained idle.
The segment data show that yarn generated most of the earnings improvement. Yarn revenue rose 6.9% to Rs10.59 billion, while segment operating profit climbed to Rs478.4 million from Rs184.4 million. That implies an operating margin of about 4.52%, up from 1.86%. Socks revenue grew faster—19.7% to Rs1.75 billion—but its operating profit was only Rs8.1 million, equivalent to a thin 0.46% margin. Socks is an expanding revenue and export channel, but it was not yet a major profit engine.
Export progress was concentrated in socks. Management reported socks export sales of Rs1.706 billion, up 18.8%, while the spinning unit recorded no export sales because high energy costs and economic uncertainty reduced its competitiveness. The geographic note is consistent with that account: sales to Europe grew 17.4% to Rs1.393 billion and US sales rose 25.6% to Rs313.2 million. Domestic revenue still represented about 86% of total sales, so the business remains predominantly exposed to Pakistan’s demand and cost environment.
Finance cost declined 25.0% to Rs88.5 million, providing another meaningful tailwind. The detailed note shows lower mark-up on long-term financing and lower bank-related charges more than offset higher short-term borrowing interest. Total financing liabilities also fell by Rs60.8 million during the year. That is encouraging, although lower finance cost should not be confused with a large deleveraging: total debt declined only 5.1% to Rs1.138 billion.
What weakened / needs attention
Cash conversion is the clearest weakness. Profit before tax and non-cash working-capital changes produced Rs640.1 million of operating profit before working-capital movements, but those movements absorbed Rs379.9 million. Stock in trade consumed Rs270.1 million and trade debts consumed Rs213.6 million, partly offset by lower advances and tax refunds. After tax, finance cost and statutory payments, operating activities used Rs12.4 million of cash rather than generating cash.
The balance sheet shows the same pressure. Inventory ended 31.3% higher at Rs1.126 billion, while trade debts more than doubled to Rs364.8 million. The auditor identified revenue recognition and recoverability of receivables as a key audit matter—not a qualification, but a signal that collection assumptions require judgment. The audit opinion itself was unmodified. Current assets excluding the prior-year asset held for sale increased, and current liabilities were broadly flat, but the mix became less liquid.
Capital expenditure rose to Rs352.0 million from Rs57.4 million. Together with negative operating cash flow, that produced a simple operating-cash-flow-minus-capex deficit of about Rs364.4 million. The sale of an investment property brought in Rs172.0 million and helped contain net investing cash outflow to Rs96.1 million. Even so, cash and bank balances fell 43.8% to Rs216.9 million. Because cash declined faster than debt, net debt increased to roughly Rs921.5 million from Rs813.0 million despite the reduction in gross borrowings.
The tax bridge also deserves care. Profit before levy and taxation was Rs456.6 million, but levy/final taxation of Rs104.7 million and income tax of Rs94.4 million reduced net profit to Rs257.4 million. The combined charge was only modestly above FY2025 in absolute terms, yet it absorbed 43.6% of pre-levy profit. Investors comparing headline profit before tax across textile companies should check whether levies are shown above or within the tax line.
No dividend was recommended. The board said retained earnings would support working capital, lower borrowing and fund modernization and energy-efficiency projects. Given the cash outflow, larger inventory and receivables, that decision is financially understandable. It also means the earnings recovery did not translate into a FY2026 cash return to shareholders.
Solar investment: promising, but not yet a quantified earnings bridge
The company commissioned a 3.6 MW solar system during the year. Management expects it to reduce grid and backup-generation costs, improve reliability and recover its capital cost in about 1.75 years. Those are forward-looking company estimates. The annual report does not quantify FY2026 solar generation, savings per unit, or the portion of the Rs352.0 million capital expenditure attributable to the project, so the current-year margin improvement cannot be assigned to solar with precision.
The same limitation applies to the broader operating recovery. Management cites cost discipline, process optimization and improved utilization, and the production data support the utilization point. However, the filing does not provide a full price-volume-mix bridge, cotton-cost bridge or energy-cost reconciliation. The defensible conclusion is arithmetic: revenue grew faster than cost of sales and utilization improved. A more specific causal split would be speculation.
Longer-run context
FY2026 is the second consecutive year of recovery after losses in FY2023 and FY2024. Revenue is the highest in the eight-year history returned, and the 8.58% gross margin is well above FY2025’s 6.11% and FY2024’s 4.69%. It remains below the 11.45% achieved in FY2022 and 10.52% in FY2021. Net profit of Rs257.4 million is also below the Rs377 million earned in FY2022 and Rs306 million in FY2021. The business has repaired profitability, but not yet returned to its strongest recent-cycle economics.
The comparison with FY2022 underlines that distinction. FY2026 revenue was about 31.5% higher than FY2022, yet net profit was 31.7% lower and gross margin was 286 basis points thinner. In other words, the company is operating at a larger nominal sales base without yet matching the profitability of the previous up-cycle. Higher utilization and the solar investment may improve that equation, but the evidence threshold is future margin and cash delivery. Until then, the most balanced reading is recovery rather than structural transformation.
AlphaGen model scores
These are AlphaGen model outputs, not figures reported by Shahzad Textile Mills: Alpha QoQ Score 34.63; TTM Performance Score 83.98; 3Y Business Perf Score 73.61; Sector Leadership Score 42.55. The combination captures the mixed picture: strong full-year and multi-year recovery, weaker recent-quarter momentum, and only mid-pack relative sector leadership.
What to monitor next
First, watch whether gross margin can remain near or above FY2026’s 8.58% once raw-material, energy and selling-price movements normalize. A sustained margin would make the operating recovery more credible; a reversal would show that part of FY2026 was cyclical.
Second, track inventory and receivables. The next result should show whether the Rs483.7 million combined year-on-year increase in those two balances converts back into cash. Reported profit can continue rising while liquidity weakens if working capital keeps expanding.
Third, look for quantified solar evidence: generation, per-unit savings, grid substitution and actual payback. The board’s 1.75-year estimate is attractive, but it needs operating data before it can be treated as an established earnings driver.
Fourth, monitor socks profitability rather than revenue alone. Export growth and higher utilization are positive, yet a sub-0.5% segment operating margin leaves little room for freight, compliance, wage or currency shocks. The division becomes strategically more valuable if growth is accompanied by a durable margin.
Finally, assess capital allocation. Equity increased 9.5% to Rs3.869 billion and gross debt declined modestly, but cash fell and no dividend was declared. The next phase of the turnaround should be judged on free-cash-flow recovery, not just another increase in accounting profit.
Sources and methodology
Pakistan Stock Exchange: Shahzad Textile Mills Annual Report 2026 — audited FY2026 annual report, including the directors’ report, financial statements, segment note, capacity data and cash-flow reconciliation.
Pakistan Stock Exchange: SZTM company page — official issuer page carrying the result and annual-report announcements.
All percentage changes, margins, utilization rates and simple cash-flow calculations in this article are derived from the audited rupee figures above. AlphaGen was used to cross-check history and supply the four explicitly labelled model scores; it is not treated as a public financial source. The filing does not provide a separate audited June-quarter cash-flow statement, so no claim is made about quarterly cash conversion.