Engro Polymer & Chemicals Limited (EPCL) announced its 1QCY23 financial result today, where the company posted a profit after tax (PAT) of PKR 1,183mn (EPS: PKR 1.30), down by 75% YoY compared to PKR 4,714mn (EPS: PKR 5.19) during SPLY. On a QoQ basis, earnings also decreased by 50%. The decline in earnings is due to lower international PVC margins, higher finance costs and gas prices. The company also announced a cash dividend of PKR 1.00/share, along with the result.

Result Highlights

· During 1QCY23, net sales witnessed a decline of 22% YoY to settle at PKR 18.0bn, amid lower PVC prices (-36% YoY) and 19% YoY decline in PVC volumetric sales to 52K tons. The volumetric sales of caustic soda also dropped to 14K tons, down by 18% YoY.

· Gross margins of the company went down by 13ppts YoY to 20% during 1QCY23 owed to higher gas prices along with depressed PVC margins (-46% YoY). However, 32% YoY PKR depreciation during 1QCY23 cushioned the decline.

· We view that other expenses surged by 152% QoQ to PKR 766mn during 1QCY23 attributable to exchange losses.

· Other income increased by 3% YoY | 194% QoQ to PKR 444mn during 1QCY23 due to rise in interest rates.

· Finance costs during 1QCY23 increased by 92% YoY to PKR 1,177mn in lieu of higher interest rates.

· Effective tax rate during 1QCY23 arrived at 29% compared to 25% during 1QCY22.

Recommendation

We have a “HOLD” call on the scrip with a Dec’23 target price of PKR 45.5/share

Courtesy – AHL Research