Searle Company (SEARL) announced its 1QFY26 results recently, recording an unconsolidated profit of Rs854mn (EPS of Rs1.45) vs. a profit of Rs301mn in 1QFY25, up by 2.8x YoY and 5.2x, mainly driven by higher sales growth. Earnings are higher than our expectations due to sales above estimates, according to a report by Topline Pakistan Research. Along with the results, the company has not announced any payout as per our expectations.
Net sales of the company increased by 28% YoY and 51% QoQ to Rs8.6bn in 1QFY26, exceeding our expectation of Rs7.0 bn. According to our channel checks, the sales increase was driven by both higher prices and volumes. In the previous quarter, volumetric sales were impacted by supply constraints, which have since been resolved.
Also, management is now focusing on increasing contributions from its existing product portfolio following the disinvestment of Searle Pakistan. Company gross margins also improved to 55.9% in 1QFY26, compared to 45.8% in 1QFY25 and 52.6% in 4QFY25. Distribution expenses in 1QFY26 increased by 71% YoY and 17% QoQ to Rs2.6bn. Finance cost decreased by 62% YoY and 10% QoQ in 1QFY26 due to a decline in borrowing, coupled with lower interest rates, as the company utilized proceeds from the divestment of its subsidiary (ex OBS) to repay debt.
The company has recorded a tax expense of Rs546 (Effective tax rate: 39.0%) in 1QFY26 vs. Rs148mn (Effective tax rate: 33.0%) in 1QFY25.
We maintain our BUY call on SEARL, and the stock is currently trading at FY26E/27F PE multiples of 16.2x/10.7x.
