Engro Polymer & Chemicals Ltd (EPCL) is slated to announce its 1QCY22 result (18th Apr’22), where we expect the company to post 1QCY22 NPAT of PkR2.9bn (EPS: PkR3.17), as compared to PkR4.1bn (EPS: PkR4.56) in the same period last year.

We expect PVC offtakes to remain flat for the outgoing quarter due to a seasonal slowdown in construction activity (cement sales, down 5.3%QoQ in 1QCY22).

Hence, in our estimates, we have assumed PVC sales of 55K MT for 1QCY22, while PVC – Ethylene margins for 1QCY22 average at US$863/MT, down 22%QoQ. The ethylene prices have skyrocketed due to massive volatility in oil markets following Russia’s invasion of Ukraine and force majeure declared by a Korean company, putting immense pressure on PVC margins in 1QCY22. As a result, our gross margin estimate remains on the lower side at 27.8% vs 35% in 4QCY21.

To highlight, global PVC prices rose by only 4.3/28.5% QoQ/YoY to hover around US$1,430/ton, while Ethylene prices rose by a staggering 39/7% QoQ/YoY to hover around US$1,405/ton.

We also foresee an increase in finance cost of 54%YoY due to sharp hikes in the interest rate and other income of PkR376mn, up 29.1%YoY. Finally, we expect EPCL to announce a cash dividend of PkR3.0/sh.

Courtesy – AKD Research