EPCL has posted a consolidated NPAT of PKR3.5bn (diluted EPS: PKR2.93) for 4QCY23, up 25% YoY and 34% QoQ. The 4QCY23 result came higher than our expected NPAT of PKR1.3bn (diluted EPS: PKR1.15) with major deviation primarily stemming from higher premium on international PVC price and lower finance cost. This takes CY23 NPAT to PKR8.9bn (EPS: PKR7.39), down 24% YoY. EPCL also announced a final cash dividend of PKR1.0/sh, taking the full-year payout to PKR6.0/sh; this is lower than our expected payout of PKR1.50/sh.
Key takeaways from the 4QCY23 result:
§ Revenue clocked in at PKR19.2bn, down 5% YoY and 23% QoQ. The sequential decline can be attributed to lower PVC volumes during the quarter amid subdued construction demand. This is lower than our expected topline of PKR23.0bn.
Gross margins were recorded at 26.9%, up 8.7ppt YoY and 0.8ppt QoQ. Gross margins came much higher than expected by 18.7% primarily due to higher than average premium on international PVC prices to offset the impact of higher gas tariff in 4QCY23.
In our view, other income increased 164% YoY and 6% QoQ to PKR399mn, which can be attributed to higher interest income amid higher short-term investments and bank deposits.
Among other line items, (i) distribution expenses were up 137% YoY and 188% YoY to PKR406mn, largely attributable to higher product transportation costs and increased salaries. (ii) Administrative expenses reached to PKR721mn, up 234% YoY and 146% QoQ. (iii) Finance cost has declined by 71% YoY and 80% QoQ to PKR250mn amid repayment of long-term loans.
Effective tax rate clocked in at 16.8% in 4QCY23 – lower than our expected effective tax rate of 41.0%. We await detailed financials for more clarity on lower effective tax rate.
Earnings have improved on the back of higher premiums on international PVC prices, offsetting the impact of higher gas tariffs. While this should lead to a higher selling price of PVC in the local market and maintain gross margins of the company, at the same time, it should adversely lead to lower PVC volumes. Going forward, subdued construction activity and volatile oil prices can keep demand and PVC-Ethylene margins in check in the near term.
Courtesy- Intermarket Securities Limited.