We anticipate that Fauji Fertilizer Company (FFC) will report a consolidated earnings per share (EPS) of PKR 19.6 billion for the second quarter of CY26, translating to an EPS of PKR 13.6. This reflects a quarter-on-quarter growth of 12%, although we expect a year-on-year decline of 22%.

The sequential growth in earnings is expected to be fueled by robust Kharif demand, boosting net sales by 7% QoQ to PKR 102.17 billion. Gross profit is projected to rise by 17% QoQ to PKR 34.21 billion, improving the gross margin from 31% to 33% compared to the previous quarter. Operating profit is also likely to increase 15% QoQ to PKR 24.51 billion, despite an uptick in distribution expenses. Furthermore, we predict the company will declare an interim cash dividend of PKR 9.00 per share, up from PKR 8.50 per share in the first quarter of CY26.

On an annual basis, revenue is anticipated to grow by 12%, spurred by better fertilizer volumes during the Kharif sowing season. However, earnings are expected to contract by 22% YoY, primarily due to a significant 46% decline in other income to PKR 11.2 billion, which overshadows improvements in core operating performance. Consequently, profit before tax is projected to dip 18% YoY to PKR 31.5 billion, with profit after tax estimated at PKR 19.65 billion.

FFC has notably outperformed the industry in the urea segment, with urea offtake rising 19% month-on-month and 14% year-on-year, reinforcing its leading market position. However, DAP sales have declined 3% month-on-month and 52% year-on-year, indicating persistent weakness in phosphate demand industry-wide.

We maintain a Buy recommendation on FFC, setting a target price of PKR 655 for June 27, which suggests a potential upside of 23%. With an anticipated dividend yield of 8%, the company remains a strong price leader in the sector, backed by its significant market share, cost efficiencies, and relatively favorable gas supply conditions.

Source: AL Habib Capital Markets Pvt Ltd.