A line-by-line read of the FY2025/26 Annual Report: what the disclosures actually show on margins, cash flow, market share, the Mirotone acquisition, and whether the numbers match the narrative.
Revenue (+9%) and gross profit (+20%) are genuine and good. But operating profit was dead flat (+1%), every return metric fell, the cash-conversion cycle blew out to ~267 days, and the headline "−14% PAT" is almost entirely a tax-line base effect — not an operating collapse. Meanwhile the stock re-rated from 7.7× to 13.4× earnings while EPS fell 17%. The franchise (57% wood-coatings share) is excellent; the FY26 result is a hold-the-line year, not the breakout the report's tone implies.
Group, LKR Mn unless noted. Colour = direction that matters for the business.
* The −14% PAT is misleading — see the bridge below. Pre-tax profit actually rose 6%.
Walk the income statement down and the decline disappears above the tax line — then reappears purely because of the tax line. Last year's profit was flattered by a one-off tax credit; this year normalised.
Backward integration is working. The acrylic-binder plant (Sri Lanka) and alkyd-resin plant (Bangladesh) held cost of sales growth to just +3% against revenue growth of +9%, pushing gross margin from 34% to 37.9%. That is real, structural, and the best part of the result.
But the entire +Rs 782M gross-profit gain was consumed by selling & distribution (+31%) and administrative expenses (+44%) — spending tied to the international push. Operating margin therefore fell from 15.7% to 14.6%.
The open question for FY27: is that cost step-up a one-time investment that converts to revenue, or a permanent drag? If S&D and admin don't grow much slower than revenue next year, the expansion isn't paying for itself.
After the 2021/22 inflation-driven jump, top line has been broadly flat for three years (11.6 → 11.6 → 12.6 Bn). EPS peaked in FY24/25 on the tax credit and fell back. The price, meanwhile, kept climbing.
~5–9% nominal growth in a high-inflation / FX-volatile economy is roughly flat in real terms.
* tax-credit flattered. P/E re-rated 7.7× → 13.4× on falling EPS.
Equity grew 16% but part of that is FX-translation and revaluation reserves from consolidating the New Zealand/Australia operations — not earnings. So the 14% rise in net assets per share flatters book growth, and the falling returns show the larger capital base isn't yet working as hard.
Five years and four emulsion launches in — WHITE by JAT, Kolorz, Hydro+ waterproofing, and new interior wall fillers — decorative paint is still a rounding error against Dulux, Nippon and Causeway. The 9% share is the clearest evidence that breaking into wall paint has not worked.
Rather than another product, they launched the JAT Painters Club (Jan 2026) — a loyalty structure to pull emulsion through the same painter community that already buys their wood coatings. It's a smart use of the channel moat (57% of wood-coating painters are already in their orbit), but it's unproven and the 9% share says it's very early.
Bottom line: yes, the profit engine is still Sayerlack wood coatings. The wall-paint ambition remains aspiration, not contribution.
The cash-conversion cycle stretched from ~236 to ~267 days. Inventory sits ~154 days, receivables ~139 days, while payables shrank from 44 to 26 days — i.e. they're paying suppliers far faster while collecting slower and holding more stock. That is a direct cash drain.
Despite the Board explicitly setting "debt-reduction KPIs" and "free-cash-flow discipline," net debt rose 15% to Rs 2,189M — partly to fund the Mirotone deal and capex. That is a clear gap between stated governance targets and the outcome.
Verify this: the audited statement of cash flows (operating cash flow, free cash flow) sits deep in the financial statements and should be read directly. A 267-day cycle plus rising net debt strongly implies operating cash flow lagged reported profit — the single most important thing to confirm in the notes.
The report devotes a multi-page spread and the word "transformative" to acquiring Mirotone (NZ) — a 90-year-old wood-coatings brand. The actual financials:
That's ~3.9% of revenue — smaller than the annual marketing budget. A 90-year "market leader" changing hands for ~USD 1.6M is itself a tell: it was either sub-scale or distressed (the Chairman concedes NZ was in recession in 2025).
The case for: a cheap call option on developed-market entry. Real prizes are (1) dollarised revenue, (2) making Mirotone-branded product in Sri Lanka for Australia — capturing the manufacturing margin, and (3) R&D / brand credibility in Australasia.
The case against: it's immaterial near-term, Australia is a brutal market (Dulux, Resene, Wattyl), and the relaunch is unproven. The narrative is wildly out of proportion to a USD 1.6M deal.
This matters for anyone tracking JAT as a property play: the listed entity does not develop apartments or real estate.
The real-estate venture — JAT Property Group (Pvt) Ltd — is the founder family's separate company (Richard Gunawardene is its Founder; Anika Williamson, a JAT board member, is its Finance Director). It is a related party, not a consolidated subsidiary of JAT Holdings PLC. Third-party data services that tag JAT with "residential development" are conflating the two.
What the listed company actually owns under "Furnishing solutions & projects" is the SEAFORM luxury kitchens / wardrobes / vanities business, Herman Miller office furniture, and commercial interior projects — not property development.
| Wood coatings (Sayerlack) | Core engine |
| Decorative paints & accessories | Sub-scale 9% |
| Furnishing & projects (SEAFORM, Herman Miller) | Project-lumpy |
| EV charging (Volt, 84%) | New, small |
| Chemicals (Worldwide Resins) | Vertical integ. |
The report does not disclose revenue and profit by segment — a real transparency gap (see "Message to the Company").
| What they said last year | What happened | |
|---|---|---|
| Lift gross margin via backward integration | GP margin 34% → 38% | Delivered |
| Grow dollarised / international revenue | Added NZ & Australia, but export share fell 35%→26% as Bangladesh collapsed | Mixed |
| Reduce debt (Board KPI) | Net debt rose 15% to 2,189M | Missed |
| Free-cash-flow discipline (Board KPI) | Cash-conversion cycle worsened ~31 days | Missed |
| Accelerate R&D / new products | 15 launches (vs 4); 10 in pipeline | Delivered |
| Scale EV (Volt Charge) | Largest network claim: 80+ stations, 2,000+ chargers, 15,000+ users | Delivered |
| Grow decorative / wall paint | Still 9% emulsion share; new Painters Club launched | Not yet |
Weighted toward the things that actually drive long-term value. Scores reflect FY26 result and trajectory. Out of 10.
A franchise-grade balance sheet and resilient revenue, dragged down by deteriorating cash quality and returns, and a diversification story (wall paint, EV, Mirotone) that hasn't yet delivered scale. Solid foundation; unremarkable year.
A discounted-cash-flow framework, fully transparent and interactive. This is an educational model, not a price target or recommendation. Move the sliders to see how value responds. The point isn't the precise number — it's that, at realistic Sri Lankan discount rates, the model struggles to reach the ~LKR 39 market price without optimistic growth/margin and a low discount rate.
Highlights lead with revenue (+9%) and gross profit (+20%); the −14% PAT, −17% EPS and falling ROE sit lower. Standard, but worth naming.
True — but the prior year was exceptional largely because of a tax credit and provision reversals. The soft language avoids explaining the base effect.
The governance section states the Board set debt-reduction targets and "free-cash-flow discipline." Net debt rose 15% and the cash cycle worsened. Rhetoric and outcome diverge.
Mirotone gets "transformative" framing for an acquisition worth ~3.9% of revenue. Watch for a bargain-purchase gain flowing through other income.
DPS fell 45% (0.80 → 0.44); payout dropped to 15%. Presented via "dividend cover improved to 6.63×" — a cut dressed as discipline.
The report shows group totals but not revenue and profit by segment. Investors can't see whether decorative, furnishing or EV make or lose money — only that wood coatings carries the group.
+16% equity / +14% NAV per share is partly FX translation and revaluation from the NZ/Australia consolidation, not retained profit.
You own a 57%-share wood-coatings franchise, a fortress balance sheet, and real R&D. The FY26 result didn't reflect that strength. Seven things, in priority order: