ATRL to reach Rs1,136/share by Jun 2026

July 15, 2025 (MLN): Arif Habib Limited has placed a bold bet on Attock Refinery Limited (PSX: ATRL), initiating coverage with a “BUY” call and a June 2026 target price of Rs1,136/share, implying a hefty 69% upside from its current price of Rs672/share.

The brokerage expects ATRL to deliver a robust 4-year forward earnings CAGR of 36%, powered by refinery upgradation, policy-driven margin sweeteners, and a looming deregulation windfall.

Why so bullish?

ATRL, Pakistan’s oldest refinery, is gearing up for a transformative phase. 

ATRL has already signed an agreement with Italy’s STP Studi for Front-End Engineering Design (FEED) and PMC services, signalling that the long-awaited upgrade is finally within reach.

The upgrade is expected to shift the production mix toward higher-value Euro-V compliant fuels, ramping up Motor Spirit (MS) output by 25%, and eliminating penalties worth Rs5bn annually on sub-standard RON and high sulphur HSD.

Under the new refinery policy, ATRL will be allowed to retain the full 10% deemed duty on HSD and MS for six years, unlocking a potential PKR 130bn cumulative cash flow, which will be parked in an escrow account and largely fund the upgrade.

Crude supply from UEP’s Naimat field is expected to support throughput in FY26, with HSD share rising to 35% from 34%, providing further earnings lift ahead of the upgrade’s operational start in FY29.

Balance sheet muscle sets it apart

Unlike its peers, ATRL is entering this capex-heavy phase with a fortress balance sheet, holding Rs77bn in cash (Rs721/share), a book value of Rs1,345/share, and is debt-free.

It also enjoys extended payables due to local crude procurement, ensuring steady cash flows. This means the company is well-positioned to capitalize on the policy once signed, without risking leverage strain.

Strategic location + deregulation = double earnings kicker

ATRL’s refinery in Morgah, Rawalpindi gives it a powerful edge. Under Pakistan’s current regulated regime, refineries and OMCs adjust prices through the Inland Freight Equalization Margin (IFEM) to spread transport costs.

But with deregulation on the horizon, ATRL will no longer need to share this margin. Being closest to key northern demand hubs, it stands to retain these logistics savings as profit.

According to AHL estimates, this location advantage will add a whopping Rs62.8/share to annualized earnings, making ATRL significantly more competitive versus southern refiners, who will struggle with higher transport costs post-deregulation.

Valuation still dirt cheap

ATRL is trading at only 3.9x FY26E and 2.4x FY27E forward earnings, deeply undervalued in AHL’s view.

The brokerage’s valuation builds on a DCF framework with a 21.5% cost of equity, incorporating a 5-yr beta of 1.63, an 11.8% risk-free rate, and a 6% equity premium.

Risks on radar

While the outlook is compelling, key risks include delays in signing the refinery upgradation policy, disputes with the FBR on escrow tax treatment, supply chain shocks from key fields like Naimat or Adhi, and absence of binding offtake contracts post-upgrade which could lead to inventory build-ups.

Moreover, changes in pricing mechanisms like IFEM or shifts in fuel specs could weigh on refining spreads.

Bottom line

ATRL is a classic case of a deep-value stock on the cusp of a structural re-rating. With policy clarity, plant modernization, and deregulation poised to play out over the next few years, ATRL offers an attractive risk-reward for investors willing to look beyond today’s volatility.

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