FFC, the Govt of Sindh and a Chinese firm would set up a fertiliser plant at the Thar coal field

Fauji Fertilizer Company Ltd. (FFC) held a corporate briefing today to discuss its financial performance for CY25 and outlook. To recall, FFC reported an unconsolidated EPS of PKR51.7 in CY25 (up 14% YoY). FFC also announced cash dividends of PKR 37.0 per share, reflecting a payout ratio of 72%, according to a report by IMS Research.

Key takeaways from the briefing

§ FFC is currently not offering any discounts on urea and does not anticipate a rise in local prices, despite elevated international urea prices amid the ongoing conflict in the Middle East.

§ Management does not expect an increase in gas prices in the short term.

§ The Middle East conflict has created an LNG supply shortage in Pakistan, resulting in gas curtailment at FFC’s Port Qasim plant, which has affected production at the site.

§ FFC’s core earnings contributed 62% to the bottom line. In contrast, dividends from subsidiaries/associates (PMP, AKBL, and wind power projects), along with the income on deposits, contributed the remaining 38% during CY25, providing it a hedge against the inherent seasonality of the fertiliser business.

§ PIA was privatised for PKR135bn, with FFC holding a 34% stake in the airline. The transaction will be executed in three phases:

i. an initial injection of PKR90bn by the consortium in Apr–May 2026 (FFC’s share: PKR31bn),

ii. a second injection of PKR45bn in Apr–May 2027 (FFC’s share: PKR15bn), and

iii. a call option to acquire the remaining 25% stake from the government for PKR50bn to be exercised by Apr-May 2027 (FFC’s potential outflow of PKR17bn if the call option is exercised).

§ FFC’s total cash outlay for the PIA will be c. PKR67bn until May 2027 (if call option is exercised, otherwise PKR46bn).

§ FFC, in partnership with the government of Sindh and a Chinese firm, is in discussion to set up a fertiliser plant at the Thar coal field to produce fertiliser from coal.

§ The company has made material progress on the project, with a bankable feasibility study already completed. However, management is waiting for key arrangements (such as water allocation) to be finalised before formally announcing the decision.

§ Management highlighted that the food companies in FFC’s portfolio (Fauji Fresh n Freeze and Fauji Foods Ltd.) have turned profitable, although they have not announced any dividend during the period.

We maintain a Buy rating on FFC with a target price of PKR618/sh, supported by its strong position in the fertiliser industry and a robust balance sheet that enables diversification (increased stake in FPCL, acquisition of a 34% stake in PIA, and a proposed plan to establish a fertiliser plant based on Thar coal). We expect the company to post CY26 EPS of PKR62.65 with a payout of PKR47/sh, implying a dividend yield of 9.8%.