Shaffi Chemical Industries Limited (SHCI) returned to reported profit in the year ended June 30, 2026, but the quality of that profit matters more than the headline. Furniture and foam trading revenue more than doubled and the underlying operating subtotal turned positive. Even so, almost all reported pre-tax profit came from selling the company’s investment in Diamond Industries Limited, while the auditor continued to flag a material uncertainty over going concern.
The practical verdict is therefore mixed: the trading revival is real enough to have produced revenue, gross profit and a positive core operating result, and asset-sale proceeds were used to repay large related-party balances. But the business has not yet demonstrated that recurring furniture operations can support the company on their own. Cash remains thin, manufacturing is still discontinued, equity is only marginally positive, and winding-up proceedings remain unresolved.
Results at a glance
- Reporting basis: audited annual financial statements for the year ended June 30, 2026, in Pakistani rupees, with FY2025 as the comparative period.
- Revenue: PKR 48.91 million, up 106.5% from PKR 23.68 million.
- Gross profit: PKR 8.41 million, up 130.1% from PKR 3.65 million; gross margin improved to 17.2% from 15.4%.
- Core operating subtotal before other income: PKR 5.03 million, compared with a PKR 0.30 million loss a year earlier.
- Other income: PKR 77.39 million, including a PKR 75.95 million gain on disposal of the Diamond Industries stake.
- Profit before levy and tax: PKR 77.79 million, versus a PKR 28.67 million loss.
- Profit after tax: PKR 70.66 million, versus a PKR 29.11 million loss; EPS was PKR 5.89 versus a loss per share of PKR 2.43.
- Dividend: none declared.
AlphaGen model scores
These are AlphaGen model outputs rather than company-reported figures. They describe measured business performance and relative positioning; they are not valuation calls or investment advice.
- Alpha QoQ Score: 80.13
- TTM Performance Score: 95.50
- 3Y Business Perf Score: 85.35
- Sector Leadership Score: 79.9201
The four scores are strong, consistent with the sharp swing in reported earnings and the improvement in the latest operating period. They should nevertheless be read alongside the exceptional disposal gain and the going-concern warning. A model reacting to reported profitability cannot, by itself, establish that the underlying trading business is durable.
What improved
The cleanest positive signal is at gross-profit level. SHCI’s revenue from foams and furniture increased by PKR 25.23 million, or 106.5%. Gross profit grew faster, by PKR 4.75 million, and the gross margin expanded about 1.8 percentage points to 17.2%. This means the company retained more gross profit from each rupee of sales despite the larger trading base.
Administrative and other operating expenses totaled PKR 3.38 million, down from PKR 3.96 million. Stripping out other income, the resulting operating subtotal was PKR 5.03 million, compared with a PKR 0.30 million deficit in FY2025. This calculated subtotal is more useful for judging the furniture business than the company’s reported “profit from operations” of PKR 82.42 million, because the latter includes PKR 77.39 million of other income.
Finance cost also eased to PKR 4.63 million from PKR 7.16 million, a reduction of 35.4%. The company repaid the full PKR 44.70 million principal owed to an associated company and the full PKR 33.49 million director loan. Current liabilities consequently fell to PKR 20.25 million from PKR 78.45 million, while current assets excluding assets held for sale stood at PKR 24.83 million. That moved the conventional current ratio to roughly 1.23 times from about 0.14 times.
The balance-sheet repair turned total equity positive, but only barely: PKR 0.13 million at June 2026 versus a PKR 70.55 million deficit one year earlier. The improvement is meaningful because it removes the prior negative-equity position. It is not yet a comfortable capital cushion.
What drove the headline profit
The decisive item was the sale of 1,422,450 Diamond Industries shares. The directors report PKR 75.95 million of gain on disposal, while the cash-flow statement shows PKR 97.51 million of disposal proceeds. The difference reflects the carrying value of the investment and related accounting presentation. The disposal gain alone represented about 97.6% of SHCI’s PKR 77.79 million pre-tax profit.
The remaining other income consisted mainly of PKR 1.40 million of dividend income and PKR 0.04 million of interest income. The levy charge of PKR 7.14 million included PKR 6.32 million on capital gain. This makes the recurring/exceptional split unusually clear: furniture trading improved, but the move from loss to a PKR 70.66 million net profit was overwhelmingly an investment-disposal event that cannot recur once the stake has been sold.
The FY2025 comparison also needs careful reading. Last year included a PKR 23.49 million share of loss from the associated company, whereas no such line appeared in FY2026 after the investment exit. Note 28 and the directors’ report confirm that FY2025 EPS was negative PKR 2.43; that detailed note is the appropriate source where the sign on the face of the profit-and-loss page is visually unclear.
Cash flow and working capital
The cash-flow statement reports PKR 36.03 million of net cash used in operating activities, compared with PKR 4.13 million used a year earlier. That number should not be confused with a simple measure of furniture cash conversion: the statement starts with PKR 44.67 million of cash generated from operations, then deducts finance cost, tax and a PKR 69.58 million adjustment removing the accounting gain on the share disposal.
Investing activities generated PKR 94.86 million net, chiefly the PKR 97.51 million disposal proceeds, partly offset by PKR 2.65 million invested in listed securities. Financing activities used PKR 57.90 million after the repayment of associated-company and director principal, partly offset in presentation by reclassification of accrued markup. Cash therefore rose by only PKR 0.93 million to PKR 2.08 million.
Working capital expanded with the trading business. Inventory increased to PKR 12.23 million from PKR 5.70 million, and trade receivables rose to PKR 3.30 million from PKR 2.67 million. Those balances are not alarming in isolation, but the rise means future growth will need cash. Management’s proposed rights issue is therefore central to the next phase of the revival, especially because year-end cash was modest.
The procurement base is also concentrated. The related-party note shows FY2026 purchases of roughly PKR 39.42 million from Diamond Product, Diamond Home Textile and Diamond Industries—almost the same as total net purchases of PKR 39.43 million. The filing says related-party transactions are conducted at arm’s length, but the concentration increases the importance of governance, pricing discipline and continuity of supply.
What weakened or needs attention
The strongest warning comes from the independent auditor. Although the audit opinion was not modified, the report includes a material uncertainty related to going concern. It cites accumulated losses of PKR 127.87 million, equity of only PKR 0.13 million, a winding-up petition filed by the SECP’s regional office, discontinued manufacturing operations, and the fact that furniture trading began before the principal object clause had been amended.
Manufacturing has remained discontinued for several years. SHCI is presently a furniture, foam and mattress trading business rather than a revived chemical manufacturer. Shareholders approved diversification into furniture manufacturing and trading, and the company says filings for the revised business objects and proposed name change are under regulatory review. Until those formalities and the court matter are resolved, the legal and operating structure remains a material risk.
Debt has been reduced, not eliminated. PKR 27.29 million of accrued markup remains payable to the associated concern: PKR 7.00 million within 12 months and PKR 20.29 million over the subsequent four years. That balance is large relative to total assets of PKR 40.67 million and negligible positive equity. A sustained positive operating result is needed to service it without further asset disposals or shareholder funding.
Disclosure also does not provide unit volumes, selling prices, customer concentration or a price/mix bridge for furniture sales. It is therefore possible to show the arithmetic improvement in revenue and margin, but not to attribute it precisely to volume growth, pricing, product mix or one-off customer orders. The article deliberately does not infer a company-specific sales driver beyond the documented expansion of furniture trading.
What to monitor next
- Recurring revenue and margin: whether furniture sales can grow without sacrificing the 17.2% gross margin, and whether the PKR 5.03 million core operating subtotal remains positive.
- Cash conversion: inventory and receivable growth relative to supplier payments, finance cost and taxes once the disposal-related cash-flow presentation falls away.
- Capital funding: terms, timing and uptake of the proposed rights issue, including whether it provides enough working capital without leaving the company dependent on related parties.
- Regulatory regularization: completion of the amended business objects and proposed name change, plus any PSX decision on removal from the Defaulter Segment and restoration of trading.
- Court proceedings: progress of the winding-up petition and other disclosed litigation, which remain more important to continuity than a single year’s accounting profit.
- Residual markup: delivery against the PKR 7.00 million current payment and the four-year schedule for the PKR 20.29 million non-current balance.
Bottom line
FY2026 marks a genuine operational improvement for SHCI: revenue doubled, gross margin widened, a calculated core operating loss became a profit, finance cost fell, and large related-party principal balances were repaid. Those are tangible steps in a revival.
But PKR 75.95 million of disposal gain drove almost the entire pre-tax profit, operating cash flow was negative as presented, cash ended at just PKR 2.08 million, and the auditor’s going-concern warning remains. The next result must therefore prove recurring furniture economics and cash generation rather than repeat an asset-sale-led headline. Until then, FY2026 is best read as a balance-sheet reset plus an early trading recovery—not evidence that the turnaround is complete.
Primary sources
SHCI audited annual report 2026 — Pakistan Stock Exchange
SHCI financial result for year ended June 30, 2026 — Pakistan Stock Exchange