ENGROH towers ambition anchors multi-year growth story

April 30, 2026 (MLN): Engro Holdings (ENGROH) held its analyst briefing, presenting a broadly optimistic long-term outlook anchored in digital infrastructure ownership and agricultural fundamentals, even as several segments grapple with near-term earnings pressure from regulatory headwinds and global market volatility.

The company's towers and connectivity business now its most prominent growth engine emerged as the centerpiece of management's forward-looking narrative.

The integration of Deodar has been completed, taking ENGROH's total tower portfolio to approximately 15,000 sites and giving the company a dominant position in Pakistan's nascent digital infrastructure market.

Management was emphatic that ownership of tower infrastructure is a structurally sound bet, given rising data consumption and the country's historically low base of locally owned tower assets.

On the near-term, management acknowledged that ongoing telecom sector consolidation could weigh on tenancy ratios as operators rationalise overlapping network footprints.

But the company views this as a temporary overhang rather than a structural challenge. The longer-term demand picture, is underpinned by network densification, expanding 4G coverage, and eventually 5G.

On the latter, management struck a measured tone guiding for a gradual, structural uplift in infrastructure revenues rather than a sudden step-change.

With only around 2% of handsets currently 5G-enabled, a sharp near-term revenue jump is not expected. However, an industry rollout rate of roughly 3,000 new 5G sites per year across operators should translate into steady, compounding demand for ENGROH's tower infrastructure.

The connectivity segment reported first-quarter CY26 earnings of Rs2.1bn against Rs0.6bn in the same period a year ago, though management cautioned that post-Deodar numbers are not directly comparable to prior-year figures.

The segment carries Rs40bn in long-term debt, which has been hedged a meaningful risk management move in the current rate environment.

In the fertilizer segment, Engro Fertilizers (EFERT) posted a 14% year-on-year rise in first-quarter earnings to PKR 3.3bn, driven by a 7% increase in urea offtakes and a sharp 64% jump in DAP volumes.

Improved water availability and stronger farmer purchasing power aided by better crop prices have supported demand recovery, and management expects this momentum to sustain through the year on a year-on-year basis.

A more striking dynamic, however, is the widening gap between global urea prices hovering around USD 950 per tonne and significantly lower domestic prices, which management sees as evidence of Pakistan's strategic advantage in food security and a potential opening for export.

The timing and scale of any export activity, though, remains contingent on government policy. In the near term, elevated inventory levels and higher DAP prices tied to Middle East supply disruptions remain watch points for the segment.

On the longstanding GIDC liability question, management said it remains confident in the concessional outcome, while openly acknowledging a potential worst-case exposure of approximately Rs20bn on the fertilizer side and Rs4–5bn across polymers.

Should the case go against the company, management maintained that the liability is manageable either through instalment-based settlement structures already proposed by relevant authorities, or absorbed through available balance sheet flexibility.

Engro Polymer and Chemicals (EPCL) staged a notable recovery in the first quarter, swinging to a profit of Rs371m from a loss of Rs825m in the year-ago period. Higher volumes and improving price spreads drove the turnaround.

Management was quick to temper expectations, however, noting that margins remain volatile and should not be treated as indicative of a normalised run rate. The gas levy now at Rs1,406 per mmbtu as of January 2026 remains a persistent cost challenge.

Separately, discussions with LOTCHEM over a potential divestment of EPCL are ongoing, with no final decision reached yet.

The LNG terminal segment had a more difficult quarter. Profitability fell to Rs0.8bn from Rs1.5bn a year ago, pressured by halted LNG cargo deliveries linked to force majeure conditions arising from the Middle East conflict, and a revision of Elengy's minimum turnover tax from 9% to 15%.

Management is engaging with relevant stakeholders ahead of the upcoming federal budget, seeking rationalisation of the tax treatment. The renewal of the Vopak terminal contract remains a top priority for the current calendar year.

In energy, the segment reported first-quarter earnings of Rs8.6bn significantly elevated versus the prior year, though that comparison is distorted by accounting adjustments on the thermal portfolio.

At the operational level, EPTL continues to perform well as the system's lowest-cost energy producer and is generating dividends.

EPQL's profitability declined after the hybrid take-and-pay mechanism came into effect. Mining operations were uneventful.

Management confirmed it has no current plans to further dilute its EPQL stake, having already reduced it from 68.7% to 50.4% during CY25 while retaining management control.

A previously explored divestment of power assets was set aside after the company could not find agreement on valuation.

The dairy business under Friesland Campina saw margin improvement in the first quarter, but management characterised the category as structurally challenging.

Packaged milk penetration in Pakistan remains at only 6–8%, with loose milk continuing to dominate household consumption. Higher taxation on the category compounds the challenge.

Management's response is to shift its commercial focus toward value-added products including cream, ice cream, and powder while driving operational efficiency across the board.

At the holding company level, management framed its overarching objective as returns-driven capital allocation entering new businesses where return profiles are attractive and seeking exits where they are not.

Management also showed openness to investing outside the Engro Corp ecosystem entirely if compelling opportunities present themselves.

For CY25, the company reported consolidated earnings of Rs55.6bn, or Rs46.2 per share a figure that includes a Rs26.6bn accounting uplift from reclassifying the energy portfolio to continued operations.

Stripping that out, recurring earnings were Rs29.1bn, or Rs24.1 per share. First-quarter CY26 earnings came in at Rs10.2bn, or Rs8.5 per share, against Rs1.8bn in the year-earlier period.

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