Engro Polymer & Chemicals Ltd. (EPCL) announced its 4QCY24 financial results, wherein the company reported consolidated earnings of PkR2.1bn (EPS: PkR2.3), a 40%YoY decline from PkR3.5bn (EPS: PkR3.7) in SPLY. The result exceeds our expectations, primarily due to a tax reversal and better-than-expected gross margins. However, the annual decline in earnings is driven by lower gross margins and higher finance costs. On a sequential basis, the recovery from a loss of PkR2.0bn (LPS: PkR0.8) in 3Q is mainly due to improved gross margins:

·         Revenue increased by 11%YoY to PkR21.3bn, up from PkR19.2bn in SPLY, as higher PVC offtakes offset the impact of lower product prices.

·         Gross margins contracted 14.1% from 26.9% in SPLY, primarily due to higher energy costs. Notably, gas prices for captive and process increased by 45%/15%YoY, averaging PkR3,000/2,150/mmbtu in 4QCY24, respectively, compared to an avg. of PkR2,067/1,867/mmbtu in SPLY. However, gross margins remained higher than expected, and we await further clarity on this.

·         Operating expenses declined by 51%YoY due to a high base as the SPLY figure included other adjustments.

·         Finance cost surged 7.1x YoY to PkR1.8bn, mainly due to a one-off SPLY reversal and an increase in total outstanding debt.

·         For CY24, the company reported a bottom-line loss of PkR161mn (LPS: PkR0.4), compared to a profit of PkR8.9bn (EPS: PkR9.1) in SPLY, with the decline primarily driven by higher energy costs and weaker core margins.

·         We maintain our ‘SELL’ stance on EPCL as higher energy prices and depressed core margins will likely keep profitability under pressure. Our Dec’25 target price for EPCL is PkR30/sh.

Courtesy – AKD Research