Engro Polymer & Chemicals Limited (EPCL) announced its 2QCY22 financial result today where the company posted a profit after tax (PAT) of PKR 2,338mn (EPS: PKR 2.45), down by 25% YoY compared to PKR 3,122mn (EPS: PKR 3.35) during SPLY. On a QoQ basis, earnings decreased by 50%. The decline in earnings is due to the imposition of super tax. This took the 1HCY22 earnings to PKR 7,052mn (EPS: PKR 7.55), down by 3% YoY. Along with the result, the company also announced a cash dividend of PKR 2.5/share, taking the 1HCY22 payout to PKR 7.50/share.

Result Highlights

· During 2QCY22 net sales witnessed an increase of 50% YoY to settle at PKR 22,277mn, mainly attributable to higher volumetric sales along with 21% PKR deprecation.

· Gross margins of the company went down by 141bps YoY to 34% during 2QCY22. The decline in gross margins was witnessed due to lower PVC margins, which showed a dip of 22% YoY. However, 21% YoY PKR depreciation during 2QCY22 cushioned the decline.

· Other expenses went up by 118% YoY to PKR 1,280mn during 2QCY22 attributable to exchange losses, we view.

· Other income increased by 37% YoY to PKR 420mn led by higher interest rates.

· Finance costs in the quarter under review also increased by 44% YoY to PKR 737mn in lieu of higher interest rates.

· Effective tax rate during 2QCY22 settled at 58% compared to 25% during 2QCY21, given the imposition of a super tax through Finance Act, 2022.

Recommendation

· We have a “BUY” call on the scrip with a Jun’23 target price of PKR 78.3/share.

Courtesy – AHL Research