Gadoon Textile Mills Limited (PSX: GADT) has delivered one of those counter-cyclical scorecards that make seasoned textile investors look twice: revenue drifted lower in fiscal 2025, yet margins fattened and profits surged. The company reported earnings per share of Rs85.33 for FY25, up from Rs28.35 a year earlier, even as net sales eased 2% to Rs70.98 billion. Operating profit climbed 35% to Rs4.85 billion, while the net margin improved to 3% from 1% as finance costs fell and operating discipline bit through the income statement, according to a corporate briefing issued on 10 October. In the June quarter, sales fell 14% year on year but the company still posted quarterly EPS of Rs13.88, underscoring that the heavy lifting was done earlier in the year.
Management attributes the paradox – lower sales, higher profits – to a mix of cost-side work and portfolio balance. First, the group has been replacing older, energy-intensive machinery with more efficient equipment, a move that improves yields and reduces per-unit power draw. Second, its plan to lift green energy to 40–45% of the power mix by March 2026 is already lowering the effective energy cost curve and de-risking against grid volatility. Third, finance costs were tamed: total financial charges fell 36% to Rs2.52 billion, easing a pressure point that had squeezed spinners during the rate spike of recent years. The net of those actions showed up in the gross margin – up to 9% from 7% – and in EBITDA, which rose 28% to Rs7.35 billion despite the softer top line, as detailed in the performance table on page 2 of the briefing.
There were demand-side headwinds too – and Gadoon handled them with a clinical willingness to trade price for liquidity. When the authorities deferred changes to the Export Finance Scheme (EFS) in January, buyers front-loaded inventory, then slowed orders; the company responded with aggressive sales to move stock, which temporarily weighed on margins late in the year. Yet the full-year picture shows the margin math still working in its favour, thanks to the structural cost actions and a better mix in the dyeing and knitting segments that management expects to keep carrying more weight in FY26.
The headline numbers tell an unusually tidy story for a spinning-heavy player in a volatile cycle. Net sales were down 2% to Rs70.98 billion. But gross margin was up to 9% from 7%, lifting gross profit by 26% to Rs6.33 billion. This caused operating profit to go up 35% to Rs4.85 billion, reflecting tight opex and better conversion. And net income went up 201% to Rs2.39 billion.
What changed under the bonnet? Three things stand out:
- Energy and equipment: By taking out older, power-hungry machines and bringing in efficient replacements, Gadoon lifted throughput per kWh and cut waste. Power is the single largest controllable cost line for spinners; shaving even one point off the energy-per-kg metric compounds quickly at scale. The company is also pushing renewables into the mix, targeting as much as 45% green power by March 2026 – an ambition that, if met, should stabilise margins against tariff spikes.
- Portfolio tilt: Management now expects dyeing and knitting to do more of the heavy lifting, while spinning remains challenging near term. Value-added fabric and garment-adjacent lines typically offer steadier realisations than commodity yarn, especially when global buyers are recalibrating sourcing. That tilt is visible in the stickier operating margin despite weaker sales, and it meshes with the company’s guidance for the year ahead.
- Financial stress de-risked: Finance costs fell by over a third. Some of that is macro, but much is balance-sheet management and working-capital control in a year when inventory dynamics were lumpy due to the EFS timing shifts. With fewer rupees draining out in interest, more of the operating improvement dropped to the bottom line.
The fourth quarter bears mention: sales fell 14% year on year and gross profit slipped 7%. The company leaned on “aggressive sales” to clear stocks after customers’ early-year hoarding created a digestion phase, which blunted unit economics. Even so, the quarter closed with positive operating profit and a respectable EBITDA of Rs1.51 billion, cushioning the softness.
Gadoon Textile Mills is best known as one of Pakistan’s scale spinners – an upstream anchor to a supply chain that turns domestic and imported fibre into yarns and fabrics for export and the home market. The company’s business model has evolved from a traditional spinning core into a more diversified textile platform that includes dyeing and knitting, giving it multiple levers to pull across cycles. It is this evolution – from pure commodity exposure toward a blend of commodity and value-added – that explains why profits can rise even when aggregate sales waver.
Over time, Gadoon has cultivated a reputation for operating discipline: investing in process technology when the payback is clear, and managing energy intensity as a strategic variable rather than a fixed constraint. The current equipment refresh is emblematic of that approach, as is the explicit commitment to make green power nearly half of its energy stack by early 2026. In an industry where electricity and gas costs can make or break a quarter, that is not a branding flourish; it is an operating plan.
The company’s near-term posture is deliberately cautious on exports, with management not anticipating significant export demand immediately because of inconsistent policy implementation. Instead, it is prioritising the parts of the portfolio that can earn through the noise: dyeing and knitting, operational efficiency, and balance-sheet conservatism. That stance reflects lessons learned over multiple policy and demand cycles.
Gadoon’s mix spans spun yarns, dyed fabrics, and knit textiles. The briefing is explicit that spinning remains the most exposed part of the portfolio in the current climate, whereas dyeing and knitting are expected to perform strongly. That split is typical when global buyers place a premium on shorter runs, quick turns, and value-added handling over sheer yarn tonnage. It is also consistent with the company’s recent margin resilience: value-added lines cushion the volatility of commodity yarn realisations.
The external backdrop is as important as the loom. Two policy currents in particular shaped FY25 and will frame FY26 for Gadoon and its peers.
First, U.S. tariff resets – popularly dubbed the “Trump tariffs” – have tilted the playing field. The briefing notes that the reduction in U.S. tariffs on textile imports to 19% from 29%, combined with higher export tariffs on competing regional countries, has strengthened Pakistan’s competitiveness. For a Pakistan-based supplier, that matters in two ways. One, it improves price parity at the landed-cost level for yarns and fabrics headed into U.S. supply chains, widening the window in which Pakistani offers can win orders without crushing margins. Two, it encourages buyers to revisit their “China+1” and “South Asia basket” allocations, potentially handing Pakistan a larger slice relative to tariff-penalised rivals. The magnitude of this advantage depends on product category and rule specifics, but directionally it is supportive.
Second, domestic policy around export finance and inputs is in motion. The removal of zero-rating on yarn imports under the Export Finance Scheme is framed by management as a balance-restoring move for the local spinning industry. When imported yarn enjoys a financing advantage, domestic spinners face a tilted table; taking away that advantage helps level it and can lift domestic utilisation rates. In tandem with the earlier-mentioned EFS timing issues, this shift explains the odd demand bulge and subsequent lull in the year – customers stocked up ahead of change, then stepped back. Over a full cycle, however, the removal of zero-rating should support local manufacturing economics.
In all cases, policy consistency at home is the swing factor. Management’s near-term caution on exports – explicitly linked to inconsistent policy implementation – is a reminder that tariff gifts from abroad can be squandered by volatility at home. Stable energy pricing, predictable export finance rules, and a clear input-tax regime are the difference between a fleeting advantage and a durable market share gain.
Gadoon enters FY26 with a sturdier profit engine than its top line alone would suggest. The FY25 numbers validate three theses that investors often advance but rarely see all at once in Pakistan’s textile space:
Efficiency compounding beats volume chasing. Swapping out inefficient kit and diversifying the energy stack does more for sustainable margins than a one-off spike in orders. The bump from a 7% to 9% gross margin may look small; on Rs70–73 billion of revenue, it is transformative.
Value-added buffers commodity exposure. With spinning still choppy, dyeing and knitting can keep the mills humming and the P&L respectable. Management’s forward guidance hangs a lantern on that dynamic – and it fits the pattern of textile groups that have survived multiple global shocks.
Balance-sheet prudence pays real cash. Cutting finance costs by over a third does not just flatter the net margin; it buys strategic freedom. In a year of policy hiccups and inventory whiplash, that freedom let Gadoon sell down stocks aggressively without triggering liquidity stress.
Risks remain. The fourth quarter’s softer realisations could persist if global retail stays risk-averse and if policy churn at home prompts stop-start buying. Spinning margins can be ambushed by sudden moves in cotton prices or by energy tariff resets. And while U.S. tariff relief helps, it is not a panacea; rivals will find ways around headwinds, and buyers will arbitrage aggressively. But none of those caveats undo the core: Gadoon used a down-revenue year to rebuild margin muscle.
Gadoon Textile has shown that, in Pakistan’s textile landscape, you can make more money on slightly less revenue if you treat energy, equipment and product mix as strategic levers – not as givens. FY25’s two-point jump in gross margin, a 35% rise in operating profit, and a 201% surge in net profit all arrived in a year when sales dipped. With “Trump tariff” dynamics improving Pakistan’s relative pitch in some U.S. categories, and with domestic policy slowly re-levelling the field for spinners, the ingredients exist for the company to consolidate the gains it has made in operational efficiency. The risks are real, but so is the discipline. On current evidence, Gadoon’s profit engine is better tuned than it was a year ago – and it hums even when the road tilts uphill.
