BFAGRO to hit Rs50/share, with 47% upside potential

June 26, 2025 (MLN): Barkat Frisian Agro Limited (PSX: BFAGRO), Pakistan’s first and only pasteurized egg producer, is projected to hit a price target of Rs50 per share, representing a 47% upside from the last day's closing price.

The outlook comes as JS Global Investment Limited outlines the company's unique market position, robust growth trajectory, and strong fundamentals in its report.

BFAGRO holds a significant first-mover advantage as the only pasteurized egg supplier in the country.

The company is well-positioned to benefit from a growing young urban population and the increasing demand for convenient confectionery products.

These structural demand drivers underpin the firm’s rapid growth prospects, with a robust 5-year revenue CAGR of 22% driven by strong demand, favorable pricing, and ongoing capacity expansion.

Additionally, BFAGRO enjoys a 10-year income tax holiday under the Special Economic Zones Act.

The Karachi plant’s tax exemption will expire at the end of FY29, while the new Faisalabad plant’s exemption will extend until FY36.

For its projections, JS Global conservatively assumes the tax benefits will continue until FY35.

The brokerage expects the company to start paying dividends from FY27 once the new capacity becomes operational.

In terms of valuation, JS Global uses a blended approach combining discounted cash flow (DCF) methodology with relative valuation based on industry P/E multiples.

The DCF analysis applies a WACC of 18%, which equals the cost of equity due to the company’s minimal debt levels, and assumes a terminal growth rate of 5% on projected FY37F cash flows.

The risk-free rate is assumed at 12%, with a beta of 1.0 and an equity risk premium of 6%. The cash flows have been extended through FY37 to capture the full impact of the expiry of income tax holidays.

For the multiples-based valuation, JS Global uses the industry average P/E of the last four quarters (19.7x), applying a 20% haircut to reflect company-specific risks and maintain a conservative stance.

This results in a forward FY26E P/E of 9.35x, implying a PEG ratio of 0.58x, which the brokerage believes presents an attractive entry point for investors.

Pakistan’s demographic profile is emerging as a powerful engine of demand, with nearly 67% of the population under the age of 30.

This youthful segment is accelerating urbanization and shifting consumption habits toward convenience foods and healthier snack options, especially among the expanding middle class and working population.

With the national population expected to surpass 260 million within the next three years, food consumption patterns are increasingly aligning with global trends.

This shift is driving long-term, demographically supported demand for processed and reliable egg inputs.

Currently, Pakistan’s annual per capita egg consumption stands at approximately 75 eggs, resulting in total national demand of around 18 billion eggs per year.

With a population exceeding 245 million, this level of consumption reflects eggs' growing importance in everyday nutrition.

At an average weight of 50 grams per egg, Pakistan’s yearly egg intake reaches over one million tons, underscoring the considerable market depth and long-term potential for value-added egg processors.

The processed egg industry, which includes liquid and dry egg products, has become a vital component of the country’s food supply chain.

This growth is supported by evolving consumer and industrial preferences, improved food technology, extended shelf life, and reduced wastage.

The industry caters to both food manufacturing and food service sectors, effectively meeting changing demands while optimizing operational costs.

To support this anticipated rise in demand, BFAGRO is strategically investing in the development of a new state-of-the-art facility in Faisalabad.

Expected to be completed by the end of FY26, the plant will add 12,000 tons of liquid egg production capacity, bringing the company’s total output to 29,000 tons.

This expansion will not only consolidate BFAGRO’s position in Pakistan’s domestic market but also enhance its potential for international growth.

Currently, the company holds an estimated 8% market share in the pasteurized egg segment, leaving ample room for expansion.

JS Global projects that BFAGRO’s revenue will maintain a robust compound annual growth rate of around 22% over the next five years, driven by strong local demand and increasing export opportunities.

While exports are expected to gain share in the coming years, local sales will remain the dominant revenue stream for Barkat Frisian Agro Limited (BFAGRO), accounting for an estimated 75% of total revenue over the next decade, according to projections by JS Global.

Despite facing macroeconomic challenges in recent years, BFAGRO has consistently demonstrated strong business growth.

The company has maintained stable gross and operating margins, concluding FY24 with a net profit margin of 6%.

JS Global forecasts the company’s earnings to grow at a compound annual growth rate (CAGR) of 26% over the next five years.

BFAGRO’s local pricing model has played a key role in margin stability, as it adjusts selling prices in line with changes in raw material costs.

This approach helps hedge margins effectively in the domestic market.

In contrast, export profitability benefits more directly from lower input costs, as international prices are unaffected by local economic factors.

During the first nine months of FY25, improved macroeconomic stability and a sharp drop in inflation resulted in a 5% year-on-year decline in fresh egg procurement costs.

The company passed on this benefit to customers, which led to a 14.5% increase in local volumes.

Management anticipates that this momentum in local sales growth will continue.

BFAGRO has also achieved significant progress in its export operations, which began in FY22 with shipments to the Middle East.

The contribution of export sales to total revenue has risen steadily, growing from 2% in FY22 to 10% in FY24.

JS Global projects this share to increase to 18% by FY26, with further growth anticipated.

During 9MFY25 alone, export sales surged by 116%, driven by a 94% rise in volumes, making exports a key driver of profitability.

Currently, the company exports to a diverse range of markets including the UAE, Qatar, Kuwait, Saudi Arabia, Bahrain, Egypt, Oman, and Sri Lanka. Key international clients include Kerry, Dofreeze, Sri Lankan Airlines, Mondelez, Qbake, and Gulf Central.

To support its export expansion strategy, BFAGRO is establishing a subsidiary in the UAE, aiming to deepen its penetration in Middle Eastern markets.

With the Pakistani Rupee remaining relatively stable over the past year, currency impact on operations has been minimal.

However, as export volumes grow, any future depreciation of the PKR could enhance revenue.

JS Global incorporates a 5.5% annual rupee depreciation assumption in its forecast and notes that a 5% depreciation could increase annual earnings by approximately 8%.

The company’s capital structure has also strengthened, with its debt-to-equity ratio improving from 1.8x in FY22 to just 0.06x in 9MFY25.

This reflects reduced debt reliance and a healthier equity base.

For future expansions, BFAGRO may consider long-term debt only if it aligns with its strategic growth goals while maintaining a strong balance sheet. Additionally, the company is Shariah-compliant.

BFAGRO continues to benefit from its status under the Special Economic Zones (SEZ) Act, which provides a 10-year income tax holiday.

Its existing plant in Karachi enjoys tax exemption until FY29, while its upcoming facility in Faisalabad’s M3 Industrial City will receive a similar exemption from the start of operations until FY36.

However, in line with the guidelines issued by the IMF and proposed in the FY26 Budget, tax exemptions under the SEZ framework will be restricted to FY35 or the end of the 10-year period for the respective project, whichever comes earlier.

Reflecting a cautious approach, JS Global assumes the tax benefit will only remain in effect until FY35.

Key Risks

The processed eggs industry has low barriers to entry, attracting new players and increasing competition, which could lead to pricing pressures and inconsistent product quality.

Even though BFAGRO benefits from a foreign partner's expertise, a 10% cut in sales volume could reduce our FY26 EPS forecast by 11%.

Heavy dependence on a few key customers and suppliers exposes the business to significant risks; the loss of a major client or supplier could disrupt revenue and operations.

Similarly, supply chain disruptions, caused by disease outbreaks, natural disasters, or logistics issues, can severely impact production and profitability.

The industry is also prone to volatile cash flows due to seasonality and raw material price fluctuations.

Lastly, reliance on specialized machinery means that breakdowns can cause production delays and lost revenue, while increasing maintenance costs.