Verdict
Shahtaj Textile Limited (STJT) delivered a stronger FY2026 result even though reported sales declined. Audited net revenue fell 9.4% to PKR 6.00 billion, but gross profit rose 18.7% to PKR 768.93 million and profit after tax increased 72.5% to PKR 191.49 million. The main driver was not a simple volume rebound: management deliberately increased customer-supplied-yarn weaving orders. Those contracts record less raw-material value in revenue, but carry a higher reported gross margin and require less working capital.
The improvement is credible but not uniform. Gross margin expanded to 12.82%, finance cost fell almost 30%, operating cash flow more than doubled and total borrowing declined. Against that, the calculated June quarter was loss-making, other operating expenses rose sharply, the current ratio weakened and three customers generated 63% of annual revenue. PSX also displays a current risk-warning alert for STJT under its continuous-violation framework. The result is therefore best read as a stronger and more cash-efficient business model with meaningful concentration, compliance and quarter-end execution risks.
Results at a glance
Reporting basis: audited standalone financial statements for the year ended June 30, 2026, presented in Pakistani rupees. The company has one reportable textile-manufacturing segment.
Net sales: PKR 5.997 billion, down 9.4% from PKR 6.620 billion.
Gross profit: PKR 768.93 million, up 18.7%; gross margin widened to 12.82% from 9.78%.
Calculated core operating subtotal: PKR 396.51 million, up 14.8%, after distribution, administrative and other operating expenses but before finance cost and other income. This is an analytical subtotal, not a separately labelled line in the audited statement.
Finance cost: PKR 133.19 million, down 29.6% from PKR 189.31 million.
Profit before levies and taxation: PKR 279.30 million, up 39.8%. A PKR 87.81 million revenue-based levy reduced profit before taxation to PKR 191.49 million; reported taxation was nil.
Profit after tax: PKR 191.49 million, up 72.5%; EPS increased to PKR 19.82 from PKR 11.49.
Operating cash flow: PKR 539.71 million versus PKR 207.71 million. After PKR 313.15 million of fixed-asset purchases, the simple cash-surplus measure was positive PKR 226.56 million.
Final cash dividend: PKR 11.50 per share, or 115% of face value, compared with PKR 5.50 per share for FY2025.
AlphaGen model readout
These are AlphaGen model scores, not company-reported figures and not investment recommendations.
Alpha QoQ Score: 6.78
TTM Performance Score: 68.62
3Y Business Perf Score: 58.00
Sector Leadership Score: 48.26
What improved
The revenue decline reflects a different operating mix
Management attributes the lower revenue and higher margin primarily to a greater share of weaving orders in which customers supply the yarn. Because STJT does not purchase and resell that yarn, the raw-material value is absent from both sales and cost of goods sold. Reported turnover is therefore lower, while the conversion margin represents a larger percentage of sales.
This distinction matters. Actual production was 59.35 million square metres converted to 60 picks, almost unchanged from 59.62 million a year earlier. With rated capacity of 65.30 million square metres, utilisation remained near 90.9% versus 91.3%. The 9.4% sales decline was therefore not accompanied by a comparable collapse in physical output.
Gross profit increased by PKR 121.20 million even on the smaller revenue base. Gross margin expanded by 3.04 percentage points, while the calculated core operating margin improved to 6.61% from 5.22%. Management does not publish a full price-volume-mix bridge, so the precise contribution of job-work pricing versus energy savings cannot be separated.
Solar investment supported the cost base
The company added 3.46 MW of solar capacity during FY2026, taking total renewable-energy capacity to 4.49 MW. Management says this reduced energy cost and supported profitability. This is directionally consistent with the margin improvement, although the filing does not quantify the rupee saving or the full-year contribution from the added capacity.
The investment also explains part of the cash deployment. Purchases of property, plant and equipment were PKR 313.15 million during the year. Because operating cash generation was strong, those purchases were funded without a rise in total debt.
Finance costs and leverage declined
Finance cost fell by PKR 56.12 million to PKR 133.19 million. Management links the decline to prudent financial management and the shift toward weaving orders that need less raw-material procurement and therefore less working capital.
The balance sheet supports that explanation. Total borrowings fell 14.3% to PKR 976.49 million from PKR 1.139 billion, while net debt declined 18.9% to PKR 858.21 million. The reported gearing ratio improved to 25% from 31%. Lower finance cost was therefore accompanied by lower year-end leverage rather than being solely a timing benefit.
Cash conversion strengthened
Operating cash flow rose to PKR 539.71 million from PKR 207.71 million. The cash-flow statement shows PKR 715.29 million before working-capital movements. Trade-debt collection released PKR 251.70 million and higher trade payables contributed PKR 97.22 million, partly offset by PKR 227.60 million absorbed in inventory.
After fixed-asset purchases, the simple operating-cash-flow-minus-capex measure was positive PKR 226.56 million, compared with negative PKR 282.17 million in FY2025. Cash and bank balances increased to PKR 67.27 million from PKR 30.06 million. This is a stronger annual cash result, though it should not be treated as a claim about quarterly cash conversion.
What weakened / needs attention
The final quarter reversed part of the nine-month progress
The low Alpha QoQ Score is consistent with a weak calculated June quarter. Subtracting the first nine months shown by PSX from the audited annual total gives fourth-quarter sales of about PKR 1.215 billion and a loss after tax of PKR 18.10 million, or roughly PKR 1.87 per share. The prior-year June quarter generated PKR 58.15 million profit.
The annual filing does not publish a separate fourth-quarter statement or a complete quarter-specific cost bridge. The article therefore does not assign the loss to a particular operating, financing or levy driver. The key monitoring question is whether the June-quarter loss was a timing effect around the changing order mix or an early sign that the improved annual margin is difficult to sustain.
Higher operating charges absorbed part of the gross-profit gain
Administrative expense increased 8.5% to PKR 193.30 million, which management attributes mainly to inflation. More importantly, other operating expenses rose to PKR 71.68 million from PKR 16.20 million.
The FY2026 total included PKR 29.68 million written off against old sales-tax refunds and a further PKR 8.45 million provision, along with higher Workers’ Profit Participation Fund and Workers Welfare Fund charges as profitability improved. The sales-tax items are specific provisions/write-offs rather than evidence of a permanently higher operating cost base, but they still reduced reported earnings and highlight recoverability risk in tax balances.
Other income also fell to PKR 15.99 million from PKR 43.78 million. Core margin improvement and lower finance cost were strong enough to overcome both the higher operating charges and lower other income, but repeating the same earnings growth will require either further operating gains or fewer exceptional charges.
The levy burden remains material
The audited statement distinguishes profit before levies and taxation of PKR 279.30 million from profit before taxation of PKR 191.49 million. Revenue-based levies were PKR 87.81 million, almost unchanged from PKR 88.78 million despite lower sales.
The company reported no conventional taxation after the levy, and disclosed PKR 36.76 million of unrecognised minimum-tax credit because utilisation is uncertain. Readers should not mechanically apply a standard corporate tax rate to the pre-levy subtotal when assessing this result; the minimum-tax regime materially shaped reported profit.
Customer concentration increased
Three major customers accounted for 63% of revenue, up from 52% in FY2025. That concentration can support plant utilisation and order visibility, but it also increases exposure to customer-specific pricing, order timing and collection risk.
Foreign sales represented 16.91% of fabric revenue, up from 15.15%, while local and indirect-export sales represented 83.09%. The company therefore remains mainly exposed to domestic demand and customer conditions, even though currency and export-market risks are still relevant.
Liquidity is adequate but slightly tighter
Current assets rose only 1.1% to PKR 2.290 billion while current liabilities increased 6.0% to PKR 1.519 billion. The year-end current ratio eased to approximately 1.51 times from 1.58 times.
Inventory increased 21.9% to PKR 1.265 billion, while trade receivables fell 29.2% to PKR 618.03 million and trade payables rose 12.4% to PKR 884.37 million. The receivable reduction helped cash generation, but the higher stock and payable balances show that working-capital discipline remains important.
PSX displays a risk-warning alert
The current PSX company page displays a Risk Warning Alert stating that STJT is in continuous violation under clauses 5.11.1 or 5.11.2 and carries risk of suspension or delisting. The page does not explain the specific underlying breach in the result material reviewed here, so this article does not speculate about the cause.
This is separate from the audited financial result and does not invalidate the earnings figures. It is nevertheless decision-relevant and should be clarified through subsequent PSX notices or company disclosure.
Dividend and capital allocation
The board recommended a final cash dividend of PKR 11.50 per share, equal to 115% of face value. On 9.66 million shares, the proposed distribution is approximately PKR 111.09 million, or about 58% of FY2026 profit after tax.
The payout is materially higher than FY2025’s PKR 5.50 per share. It is supported by positive post-capex cash generation and lower debt, although the remaining net-debt position and working-capital requirements argue for continued balance-sheet discipline.
Longer-run context
STJT’s sales have declined from PKR 8.09 billion in FY2023 to PKR 7.95 billion in FY2024, PKR 6.62 billion in FY2025 and PKR 6.00 billion in FY2026. Over the same period, profit after tax moved from PKR 153.01 million to PKR 27.19 million, then recovered to PKR 110.98 million and PKR 191.49 million.
The latest year is therefore a genuine profitability recovery, but the lower revenue base needs interpretation. Management’s shift toward customer-supplied-yarn weaving orders reduces gross reported turnover by design. The more relevant durability tests are gross profit in rupees, operating cash flow, finance cost, customer concentration and whether the final-quarter loss reverses.
Net margin improved to 3.19% from 1.68%, still below FY2022’s 4.02%. This leaves room for further improvement, but also shows that FY2026 has not yet restored the strongest profitability in the disclosed five-year series.
What to monitor next
- Order mix: watch whether customer-supplied-yarn weaving remains large enough to protect margins without weakening absolute gross profit.
- June-quarter recovery: the next reported quarter should show whether the calculated PKR 18.10 million fourth-quarter loss was temporary.
- Solar benefit: monitor energy cost and gross margin as the added 3.46 MW of solar capacity contributes for a fuller period.
- Working capital: receivables improved sharply, but inventory and payables rose; sustainable cash conversion requires that this balance remains controlled.
- Customer concentration: three customers generated 63% of sales, making order retention, pricing and collection behaviour material.
- Levies and tax credits: the minimum-tax regime and the unrecognised PKR 36.76 million credit can materially affect the conversion of pre-levy profit into net income.
- PSX compliance status: monitor official notices for the specific basis and resolution of the current risk-warning alert.
Bottom line
FY2026 was a stronger year for STJT despite the headline sales decline. The company produced almost the same physical fabric volume, shifted toward a less working-capital-intensive order model, expanded solar capacity, improved gross margin, reduced finance cost and debt, and generated positive cash after capital expenditure.
The recovery still has weak points: the final quarter was loss-making on a calculated basis, other operating expenses included material sales-tax write-offs and provisions, liquidity tightened modestly, and customer concentration increased. The PSX risk-warning alert is an additional non-financial issue that requires clarification. The next result needs to confirm that the improved margin and cash profile can persist beyond a single year.