NATF cooking up gains, eyes Rs485/share

November 05, 2025 (MLN): National Foods Ltd (PSX:NATF) is projected to reach a target price of Rs485 per share  December 2026, a potential upside from current price of Rs394.

JS Global Capital Ltd has reinitiated coverage on National Foods with a “Buy” rating, citing robust earnings growth potential, sustained margins, and benefits from tax incentives under the company’s expansion into a Special Economic Zone (SEZ) in Faisalabad.

The brokerage expects National Foods’ standalone earnings to post a five-year CAGR of 28%, with Pakistan operations contributing over 90% of consolidated profits and 76% of the target price.

The report highlights the company’s strong brand positioning, pricing power, and growing demand for convenience food products as key drivers supporting a 15% five-year sales CAGR.

Despite input cost pressures in FY23–24, NATF sustained gross margins above 30%. With raw material prices easing, the start of production at its cost-efficient Faisalabad facility, and greater in-house sourcing, margins are expected to remain above 35% already reaching 38% in 1QFY26.

The company’s tax rate is projected to decline to around 12% during FY26–34, reflecting the SEZ exemption.

At its recent Annual General and Corporate Briefing Sessions (AGM & CBS), the management reaffirmed that National Foods remains the market leader in ketchup, recipe mixes, pickles, salt, and jams.

The company has also introduced a new range under its ‘Drizzle’ sauces brand, aiming to strengthen its presence in the fast-growing condiments segment. Ketchup, recipe mixes, and pickles together account for 60–70% of total revenues.

The company reiterated its commitment to a consistent dividend policy, with Rs18 per share declared in the first quarter, including Rs3 in recurring DPS and Rs15 as a special payout from the A1 Bags & Supplies divestment gain.

 For FY26, NATF expects earnings between Rs25–30 per share, with gross margins to stay around first-quarter levels of approximately 38%.

SOURCE: COMPANY FINANCIALS, JS GLOBAL

The management noted that the new Faisalabad plant is already delivering cost efficiencies and improved product pricing flexibility, while UAE-based subsidiaries are expected to achieve breakeven within two to three years.

 JS Global noted that NATF’s recent divestment of its 50.5% stake in A1 Bags & Supplies to CCMP Growth Advisors is expected to unlock value and strengthen the balance sheet. The deal is estimated to add Rs56 per share in post-tax capital gains to FY26 earnings and Rs72 per share in net cash to the target price.

According to the brokerage, a 15% upside to FY27 earnings is possible if reinvestment yields from the divestment proceeds reach 10%, compared to the 4.5% currently assumed. It, however, cautioned that soft domestic demand or delays in new investment projects could affect near-term sentiment.

National Foods currently trades at a FY27 forward P/E of 14.2x, well below its 10-year average of 29x and peers’ average of 21x. The stock’s PEG ratio of 0.6x also suggests attractive relative valuation compared to its five-year historical average of 1.3x.

JS Global’s liking for the stock is anchored on its strong revenue base, stable margins, and long-term growth opportunities arising from demographic shifts, increasing urbanization, and rising demand for convenience and packaged food products. The brokerage also sees upside from exports to regional markets, the divestment-driven deleveraging plan, and lower interest rates ahead.

However, the report also flags key risks, including potential weakness in domestic demand due to persistent inflation and slower recovery in household spending, as well as volatility in agricultural input prices that could pressure margins if cost increases are not fully passed on.

The brokerage also warned that any early withdrawal or delay in the SEZ tax holiday could materially affect earnings forecasts beyond FY34, while execution risks around reinvestment of A1 divestment proceeds and new overseas ventures may result in longer payback periods or lower-than-expected returns.

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