Is BFAL a unique investment opportunity in Pakistan’s food sector?

Key takeaways

• Barkat Frisian Agro Limited (BFAL) is Pakistan’s first producer of pasteurized eggs, operating as a joint venture between Buksh Group (Pakistan) and Frisian Egg Group (Netherlands).
• The company is offering 67.7 million shares (21.85% of post-IPO equity) at a floor price of PKR 13 per share, with a total transaction value of PKR 880.5 million.
• Funds raised will be used for a new production facility in Faisalabad, expanding BFAL’s total production capacity to 29,000 tons by FY29.
• BFAL’s exports surged from PKR 250 million in FY23 to PKR 643 million in FY24, indicating strong international demand.
• BFAL benefits from a 10-year income tax exemption due to its expansion in the Special Economic Zone, adding a cost advantage.
• The IPO offers a compelling valuation, with a TTM P/E ratio of 7.4x at the floor price, significantly lower than the industry average of 21.2x.

Barkat Frisian Agro: pioneering pasteurized eggs in Pakistan

Barkat Frisian Agro Limited (BFAL) has positioned itself as Pakistan’s first and only producer of pasteurized eggs, addressing food safety and quality concerns in the country’s food processing industry. Established in 2017, the company began commercial operations in 2019 and now supplies pasteurized whole eggs, yolks, and egg whites in frozen and liquid forms to leading food companies.

BFAL’s innovative processing ensures zero waste, longer shelf life, and superior food safety, making its products an attractive alternative to raw eggs in baking, cooking, and protein-based industries.

IPO details: raising capital for expansion

BFAL is set to offer 67.7 million shares through its IPO, representing 21.85% of post-IPO equity, at a floor price of PKR 13 per share and a ceiling price of PKR 18.2 per share. The company aims to raise PKR 880.5 million at the floor price, with the capital being primarily used to set up a new production facility in Faisalabad and reduce outstanding debt.

The company’s book-building process is scheduled for February 17-18, 2025, followed by a public subscription on February 24-25, 2025.

Growth potential & market position

BFAL has demonstrated strong export growth, with international sales increasing from PKR 250 million in FY23 to PKR 643 million in FY24. To meet rising demand, BFAL is investing PKR 807.4 million in its second production facility, which will increase capacity to 29,000 tons by FY29.

The company serves major clients such as Unilever, English Biscuit Manufacturers, and Mondelez, solidifying its position in Pakistan’s growing food sector.

Additionally, BFAL enjoys a 10-year tax exemption due to its expansion in the Special Economic Zone, further enhancing its cost efficiency and profitability.

Why does BFAL’s IPO offer a strong investment case?

Discounted Valuation with High Growth Potential

BFAL is being offered at a TTM P/E ratio of 7.4x at the floor price, which is significantly lower than the industry average of 21.2x. Its P/S ratio of 0.8x at the floor price is also more attractive compared to the sector average of 1.4x, making the IPO an appealing investment.

Expanding Production & Product Line

The company plans to diversify its product portfolio, adding powdered, organic, free-range, and pasteurized shell eggs to its existing offerings. This expansion will help BFAL capture a larger share of the growing demand for premium food products.

Risks to Consider

While BFAL presents a promising investment, there are key risks to watch:

• Consumer acceptance of pasteurized eggs in Pakistan remains uncertain, as this is a new market segment.
• Revenue concentration risk, with 35% of sales coming from English Biscuit Manufacturers (EBM).
• Potential disease risks, such as avian influenza, could impact production and supply chains.

Should you subscribe to BFAL’s IPO?

Barkat Frisian Agro Limited offers a first-mover advantage in Pakistan’s pasteurized egg market, with strong growth potential, expanding exports, and an attractive valuation. With its 10-year tax exemption, new production facility, and strong client base, the company is well-positioned to scale its operations.

Given its discounted valuation compared to industry peers and high expected growth, BFAL’s IPO presents a favorable risk-reward profile. Investors looking for a unique opportunity in Pakistan’s food sector should closely consider subscribing to the IPO.

Source: Ismail Iqbal Securities