Engro Corporation, a conglomerate, is set to expand its focus on shared mobile phone towers and construction materials, anticipating reduced borrowing costs. The conglomerate’s flagship fertiliser project aims to benefit from the Petroleum Policy 2012. Engro is in talks to sell part of its thermal energy business to Liberty Power, potentially earning Rs30-40 billion. Topline Research recommends buying Engro stocks, citing the potential value unlocked by the sale of thermal assets.
Enfrashare, an Engro subsidiary, plans to extend its tower network, aiming for 8,000 towers by 2028. Despite an expected loss in 2023, projections show a shift to profitability by 2026 as interest rates decline. The research anticipates Enfrashare’s losses decreasing with a decline in interest rates, leading to profits in 2025 and 2026.
Engro Polymer and Chemicals Ltd. (EPCL) are expected to see increased PVC sales, driven by a pickup in construction activities. The research envisions a 5-year CAGR of 5% in PVC sales, reaching 285,000 tonnes by 2026. Engro is in discussions with Liberty Power to reduce exposure in thermal energy assets.
The research suggests a potential special dividend announcement of Rs45/share in 2025, bringing the total dividend to Rs91/share for the year. Engro Fertilizers is poised to benefit from the Weighted Average Cost of Gas (WACOG) mechanism, with a positive impact on its bottom line. The research offers a potential upside of 63%, with an estimated dividend yield of 20% for 2024 and 31% for 2025.
Engro’s current trading metrics show an attractive PE ratio compared to historical averages. Key risks include delays in divestment, WACOG implementation, a drop in international urea prices, and lower-than-expected declines in interest rates. Topline Research indicates these risks may impact potential upside but not the current base performance.
