Engro Polymer & Chemicals Ltd. (EPCL) announced its 3QCY24 financial results, posting a loss of PkR698mn (LPS: PkR0.77), compared to earnings of PkR2.6bn (EPS: PkR2.74) in SPLY. The loss is attributed to a 20.6ppts contraction in gross margins and elevated finance costs. The result came in lower than our expectations, primarily due to weaker-than-anticipated core margins, which we believe stemmed from the sale of high-cost inventory.
- Revenue stood at PkR20.0bn, a 20% YoY decline from PkR25.0bn in SPLY. This decline was primarily driven by reduced sales volumes amid a slowdown in construction activity and lower PVC prices.
- Gross margins contracted sharply to 5.5% from 26.1% in SPLY, mainly due to a reduction in core delta margins to below US$400/ton from ~US$450/ton in SPLY, coupled with higher energy costs following the upward revision of indigenous gas tariffs from PkR1,200/mmbtu to PkR3,000/mmbtu.
- Other income dropped to PkR194mn from PkR376mn in SPLY due to a 39%YoY decline in average cash and short-term investments.
- Finance costs surged by 59%YoY to PkR2.0bn, driven by an increase in ST borrowing.
- Company recorded a tax reversal of PkR749mn due to booked losses, bringing the total tax reversal for 9MCY24 to PkR1.8bn.
- Overall, 9MCY24 losses accumulated to PkR2.3bn (LPS: PkR2.74), compared to earnings of PkR5.4bn (EPS: PkR5.4) in SPLY.
- We maintain a ‘Sell’ stance on the stock, with a Jun’25 target price of PkR33/sh.
Courtesy – AKD Research