Engro Polymer & Chemicals Limited (EPCL) announced its 3QCY22 financial result today where the company posted a profit after tax (PAT) of PKR 2,257mn (EPS: PKR 2.36), down by 27% YoY compared to PKR 3,107mn (EPS: PKR 3.24) during SPLY. On a QoQ basis, earnings decreased by 3%. The decline in earnings is due decline in international PVC margins. This took the 9MCY22 earnings to PKR 9,309mn (EPS: PKR 10.03), down by 10% YoY. Along with the result, the company also announced a cash dividend of PKR 2.50/share, taking the 9MCY22 payout to PKR 10.00/share.

Result Highlights

· During 9MCY22 net sales witnessed an increase of 26% YoY to settle at PKR 62.3bn, mainly attributable to higher PVC prices and 20% PKR deprecation. During 3QCY22, sales declined by 10% YoY | 24% QoQ. The decline in sales was observed due to lower volumetric sales amid monsoon season during the quarter, we view.

· Gross margins of the company went down by 149bps YoY to 32% during 9MCY22 owed to lower PVC margins, which showed a dip of 22% YoY. However, 20% YoY PKR depreciation during 9MCY22 cushioned the decline. During 3QFY22, gross margins increased by 158bps YoY to 29% mainly due to 26% YoY PKR deprecation against the US Dollar.

· Other expenses rose by 112% YoY to PKR 3.2bn during 9MCY22 attributable to exchange losses, we view. During 3QCY22, other expenses increased by 33% YoY given the aforementioned reason.

· Other income increased by 28% YoY to PKR 478mn in 3QFY22 led by higher interest rates.

· Finance costs in the quarter under review also increased by 79% YoY to PKR 873mn in lieu of higher interest rates.

· Effective tax rate during 3QCY22 settled at 27% compared to 25% during 3QCY21, given the imposition of a super tax through the Finance Act, 2022.

Recommendation

· We have a “BUY” call on the scrip with a Jun’23 target price of PKR 65.7/share

Courtesy- AHL Research