FFC Confirms Due Diligence in Progress for Potential PIA Acquisition

Fauji Fertilizer (FFC) has said that due diligence is underway to acquire PIA. The company conducted its Corporate Briefing Session on Wednesday where management discussed financial performance and future outlook.

Regarding the acquisition of PIA, management highlighted that it is currently under the due diligence process, so it is premature to confirm whether they will proceed with the acquisition or disclose any potential funding sources.

The management expects FFC to become Shariah-compliant by the end of 2025. As of Jun-2025, most of the funds have been converted from conventional to Islamic funds.

The management also highlighted that Askari Bank remains a hurdle, and they target to convert 30% of its branches to Islamic banking by year-end and achieve full conversion by 2027.

Management expects the industry’s urea inventory to remain around 1.3mn tons by December 2025. Management also communicated that no such discussions are ongoing with the government regarding urea export.

FFC reported a dividend income of Rs9bn from its energy businesses, Rs7bn from PMP, and the remaining amount as interest income on cash and cash equivalents in 2Q2025.

The company offered no discounts on urea in 1Q2025, while only nominal discounts were given in 2Q2025.

Inventory level of the company remained at 338k tons of Urea and 134k tons of DAP as of Jun-2025 vs industry inventory of Urea and DAP to 1,310K tons and 336k tons, respectively.

FFC’s market share in Urea and DAP declined from 52% to 48% and from 71% to 64%, respectively, in 1H2025. Phos Acid is currently trading at US$1,250 per metric ton.

Debt to equity ratio of the company is 16%/ 84% as of Jun-2025 compared to 19%/81% in Dec-2024.

To recall, FFC announced highest ever unconsolidated quarterly profit of Rs25.2bn (EPS: Rs17.7), up 62% YoY and 90% QoQ.

This takes 1H2025 earnings to Rs38.5bn (EPS: Rs27.02), up 47% YoY. Along with the results, the company also declared its second interim cash dividend of Rs12/share. This takes the total 1H2025 cash dividend to Rs19/share (payout ratio: 70%).

We maintain buy stance on FFC with the stock currently trading at a 2025E P/E of 8.4x and dividend yield of 9%.