Engro Polymer (EPCL) conducted its 2023 Corporate Briefing Session today, where management discussed financial performance and future outlook.
PVC sales in 4Q2023 declined by 23.5%, reaching 52K tons compared to 68K in 3Q2023. The decline in volumetric sales was attributed to reduced construction activities. Total PVC sales 2023 clocked in at 221K tons vs 241K tons in 2022, down 8.3% YoY. Approximately 56% of the PVC is allocated to the Pipes and Fittings segment.
As per the management, the domestic market of PVC contracted by 9% in 2023 due to high inflation, slowdown in construction activities and lower government sending on infrastructure projects. Management believes local PVC demand will recover in 2024 as construction activity is expected to increase once the new government is formed.
As per management, global oversupply and weak demand suggest international PVC prices will decline in 2024, while narrow producer margins will limit further price cuts.
Ethylene prices are expected to reach US$1,000/ton by the year’s end due to higher crude oil prices. Furthermore, geopolitical tension in the Red Sea could further tighten the supply.
Caustic Soda, including flex sales, decreased from 23K tons in 3Q2023 to 19K tons in 4Q2023. This takes total sales to 78K tons in 2023 vs 76K tons in 2022, up by just 2K tons.
As per the management, higher gross margins in 4Q2023 were due to an increase in caustic soda prices. Caustic soda prices are currently hovering around Rs134K per ton.
EPCL exported 22K tons of PVC and 22K tons of Caustic, generating inflows of US$26mn in 2023.
Energy costs influence the local market of caustic Soda, and the rising energy costs will continue to be a challenge for the caustic soda market.
Moreover, gas availability at competitive rates remains a key challenge, where the average gas cost in 4Q2023 remained at Rs2,500 per MMBtu.
HTDC project is expected to come online in mid-2024 and reduce gas consumption. Moreover, the Hydrogen peroxide plant will go online in mid-2024 as well.
As per management, the finance costs in 4Q2023 were reduced due to some adjustments in benchmarking. Moreover, the company also paid a significant portion of US$35mn IFC debt in 2023 and US$6mn in Jan-2024.
As per the management, the company reported a tax expense of Rs4.8bn, including a super tax of Rs1.7bn in 2023.
EPCL recorded earnings of Rs3.5bn (EPS: Rs3.69) in 4Q2023, up 50% YoY. This takes full-year earnings to Rs8.9bn (EPS: Rs9.12), down 29% YoY.
Along with the result, the company announced a final cash dividend of Rs1 per share in 4Q2023, taking a full-year payout to Rs6 per share in 2023.
Courtesy – Topline Pakistan Research