Sazgar Engineering Works Limited (PSX: SAZEW) reported a 44% increase in net profit to Rs23.60 billion for the year ended June 30, 2026.
The strong earnings growth was supported by a major increase in sales, but the results also showed growing pressure on margins, rising inventory and weaker operating cash flow.
The company reported earnings per share of Rs390.51, compared with Rs270.26 a year earlier.
Sales Surge As Costs Rise Faster
Net sales jumped 76% to Rs191.72 billion from Rs108.69 billion.
However, the cost of sales increased even faster, rising 89% to Rs145.24 billion. As a result, gross profit grew 47% to Rs46.48 billion.
Gross margin declined to approximately 24.2% from 29.1%, showing that higher sales volumes did not translate into the same level of margin expansion.
Four-wheelers remained a key growth driver, helping push the company’s top line sharply higher.
Profit Growth Outpaces Cash Generation
Operating profit increased to Rs36.45 billion, compared with Rs25.61 billion last year.
However, distribution and marketing expenses rose 78% to Rs6.19 billion, while administrative costs also increased significantly. Finance costs nearly doubled to Rs454 million.
Other income provided some support, increasing to Rs2.65 billion, while taxation amounted to Rs15.04 billion.
Despite the higher reported profit, cash generated from operations declined to Rs9.60 billion from Rs14.11 billion.
Inventory Becomes A Major Concern
One of the biggest changes in the financial statements was the sharp rise in inventory.
Stock-in-trade increased to Rs42.07 billion from Rs14.23 billion, nearly tripling during the year.
The rise suggests that a significant portion of the company’s earnings is tied up in inventory rather than being converted into cash.
Cash and bank balances consequently declined to Rs13.98 billion from Rs16.60 billion.
Heavy Investment Drives Balance-Sheet Growth
Sazgar also significantly expanded its production capacity.
Property, plant and equipment increased to Rs23.02 billion from Rs7.94 billion, while capital expenditure reached Rs15.64 billion.
Diminishing musharakah financing rose sharply to Rs5.19 billion from just Rs50 million, while trade and other payables increased to Rs30.72 billion.
Total assets more than doubled to Rs81.65 billion, while equity reached Rs43.02 billion.
The expansion is therefore being supported by retained earnings, supplier financing and additional Islamic financing alongside the company’s investment programme.
Final Dividend Takes Total FY26 Payout To Rs70
Sazgar declared a final cash dividend of Rs20 per share, taking the total FY26 payout to Rs70 per share after interim dividends.
The total payout is higher than the Rs52 per share distributed last year, but represents only around 18% of FY26 earnings.
The relatively low payout suggests that management is retaining a significant portion of earnings to support capacity expansion and working-capital requirements.
Strong Growth Comes With New Risks
Sazgar’s FY26 results present a mixed picture.
The 76% increase in sales and 44% rise in profit demonstrate strong business growth, while the dividend has also increased.
However, the decline in gross margin, sharp inventory build-up, lower operating cash flow and increased financing indicate that expansion is becoming more capital-intensive.
For investors, the key issue going forward will be whether Sazgar can convert its growing sales and production capacity into stronger margins and sustainable cash generation.