Engro Polymer & Chemicals: Hydrogen Per Oxide project comes online in 2023. De-bottlenecking of VCM on card.

Engro Polymer & Chemicals (EPCL) held its corporate briefing today to discuss 3Q2022 financial result and future outlook.

Global PVC prices declined during 3Q2022 amidst (1) demand slowdown on back of rising inflation, and (2) lockdown in China owing to COVID.

Ethylene prices also remained bearish due to decline in international oil prices and excess supply of Ethylene in Asia amid reduction in downstream activity on back of scheduled maintenance, production issue and weak margins.

That said, PVC-Ethylene core delta averaged at US$550/MT in 3Q2022 compared to US$850/MT during 2Q2022.

Management expects PVC prices to slowly rebound as Indian demand recovers post monsoon and China COVID cases subside. However, Ethylene prices will remain impacted by crude oil prices and OPEC decisions.

EPCL management plans to do annual turnaround for its PVC plant in Dec-2022 for period of one month. The exact date would be based on availability of gas. To note, EPCL currently holds inventory of around 1.5 months i.e. 20-25K tons.

EPCL’s PVC sales were down by 13% QoQ and 10% YoY to 50.5k MT in 3Q2022. The QoQ decline is due to monsoon season and floods. To highlight, 56% of PVC demand is diverted towards pipe & fittings category. The company also exported 0.3KT during 3Q2022.

The company’s caustic sales were also down by 6% YoY and 6% QoQ to 15k tons in 3Q2022.

High Temperature Direct Chlorination HTDC (energy efficiency project) and Hydrogen Per Oxide project is on track and expected to come online in 2023. Furthermore, basic engineering study is under process for de-bottlenecking of VCM production facility to 300K MT from the existing 254K MT.

EPCL announced 3Q2022 earnings of Rs2.48/share down 27% YoY and 3% QoQ. This takes 9M2022 earnings to Rs10.24/share, down 10% YoY. Along with the result, company announced dividend of Rs2.5/share, taking 9M2022 DPS to Rs10.0/share.

Courtesy- Topline Securities

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