Engro Holdings sees strong growth potential in tower business

KARACHI: Engro Holdings has identified strong growth potential in the independent telecom tower business and may consider new opportunities when the timing and partnerships are favourable.

According to a report by Topline Securities, the brokerage firm recently held a meeting with senior management of Engro Holdings Company (ENGROH), including Chief Financial Officer Farooq Barkat Ali and General Manager Group Portfolio Performance Management Usman Hassan.

Engro Corporation’s consolidated revenue has grown at a six-year compound annual growth rate (CAGR) of 21 percent from 2018 to 2024, reaching Rs540 billion (US$1.9 billion). Net profit rose at a 19 percent CAGR to Rs67 billion (US$0.2 billion) during the same period.

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The company recently completed a US$563 million transaction with VEON Group Pakistan, making it the 16th largest independent telecom company (ITC) in the world. Management believes the tower business carries strong long-term potential, though the initial focus will be on Deodar’s capital expenditure, including tower solarisation and debt servicing. Engro Connect is also expected to generate steady medium- to long-term cash flows.

Telecom and tower outlook

Management pointed out significant upside in tenancy growth at Deodar, noting that Jazz has placed only around 3,000 towers on a sharing basis out of a total portfolio of about 10,500, achieved with limited marketing effort. Over the next three to four years, Deodar’s EBITDA margins are projected to surpass those of Engro Enfrashare.

The report further said management does not see satellite services as a threat to the tower business. While satellites may serve remote areas with no tower coverage, they are unlikely to compete in regions already covered by tower networks due to cost factors.

Fertiliser and power businesses

On the fertiliser side, management said the current floods are not as damaging as those in 2022. Demand is not expected to fall by more than 4 to 5 percent. Fertiliser inventory has risen to 1.2 million tons, well above the safety threshold. Exports may be allowed after the fourth quarter of 2025 to help clear surplus stock.

For Engro Powergen Thar, management shared that 93 percent of billed receivables have been collected since inception, while current outstanding receivables stand at Rs40–45 billion. Recovery rates are currently at 98–99 percent, ensuring strong cash flow visibility over the next two to three years.

On circular debt, management said the government has not yet approached the company, though any resolution is expected to involve concessions such as a waiver of late payment surcharge.

Energy and mining updates

Management noted that ongoing Qatar–Pakistan LNG renegotiations would not affect Engro’s terminal significantly, as it operates under a fixed capacity “take-or-pay” model. Meanwhile, discussions are under way on the future of the Vopak terminal, with its current arrangement set to expire next year.

On the mining side, Sindh Engro Coal Mining Company (SECMC) is carrying out Phase 3 expansion, which will raise mine capacity from 7.6 million tons to 11.6 million tons by 2026. Plans are also in place to further scale production up to 20 million tons in the coming years.

Market valuation

ENGROH is currently trading at 2025E and 2026F price-to-earnings (P/E) multiples of 5.2x and 6.7x, respectively.

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