The management of Engro Polymer & Chemicals Limited (EPCL) held a corporate briefing session today to discuss the financial results for 1HCY23 and the outlook.
Brief Takeaways
· To recall, the company posted a profit after tax (PAT) of PKR 1.6bn (EPS: PKR 1.72) in 2QCY23, down by 33% YoY compared to PKR 2.3bn (EPS: PKR 2.57) during SPLY. On a YoY basis, the decline in earnings is due to lower international PVC margins, higher finance costs, and gas prices.
· Sales decreased by 15% YoY during 2QCY23 due to lower sales of PVC attributable to both a decline in price and volume. PVC volumetric sales decreased by 17% YoY to 49K tons during 2QCY23, primarily due to the decline in construction activities in the country.
· The management mentioned that the downturn in PVC prices is witnessed due to a hazy economic outlook, geopolitical turbulence, and volatility in international prices, slower-than-expected recovery in China, and an oversupply situation in India.
· The management expects the local market size of PVC to decline to 210K/annum during 2023, mainly due to a decline in construction activities.
· Other expenses declined by 54% QoQ to PKR 352mn during 2QCY23 due to lower exchange losses.
· Caustic sales increased by 36% YoY to 22K tons during 2QCY23 compared to 16K tons during 2QCY22. This rise in caustic sales is witnessed due to the higher local demand.
· The jump in finance cost of 110% YoY during 2QCY23 was mainly due to the higher interest rates.
· The effective tax rate during 2QCY23 was 54% compared to 29% in 1QCY23, a QoQ jump due to the upward revision in super tax (PKR 1.1bn).
· The management disclosed that the company has entered into a supplemental agreement with Sui Southern Gas Company Limited (SSGC) stipulating that the company will be operating on blended gas price (75% Local Gas: 25% RLNG) during Aug’23 and Sep’23.
· Major demand for PVC (53%) comes from the pipes and fittings segment.
· The management disclosed that the issues with establishing LCs have been resolved, and the Hydrogen peroxide plant is expected to come online in 1QCY24.
Courtesy- AHL Research