Earnings Report /
Pakistan

Engro Polymer & Chemicals Ltd: 1QCY21 analyst briefing takeaways

  • PVC volumetric sales grew by 10% qoq and 60% yoy to 53,000 tons

  • Realised core delta was US$1000- expected to normalise in the latter half of 2QCY21

  • Management expects local PVC demand to remain strong as expansion comes online

Shahzaib Naeem
Intermarket Securities
19 April 2021

EPCL posted NPAT of PKR4.1bn (EPS: PKR4.56) in 1QCY21, a sharp jump from a NPAT of PKR0.17bn (EPS: PKR0.18) in SPLY, up 15% qoq and a massive 24x yoy.

Key Highlights

  • PVC sales clocked in at 53,000 tons, up 10% qoq and 60% yoy, out of which c.2,000 tons were exported.

  • Gross margins have rose to 40% (from 18% SPLY) on the back of realised core delta of c.US$1,000/ton.

  • Although the Caustic market declined c.10% qoq, EPCL’s Caustic sales remained flat qoq and it was thus able to increase its market share.

  • PVC prices sky rocketed during the quarter, because of (i) a storm in US which knocked down 87% of its PVC supply, (ii) a heavy turnaround season in March, and (iii) high freight costs.

  • Ethylene prices also surged (following the rise in crude oil prices), but the increase in PVC prices (due to shortages) was higher due to which core delta remained high.

  • EPCL also announced commercial operations of the new PVC plant on 1 March 2021, increasing the capacity to 295,000 tons per year, whereas the VCM debottlenecking project (DBN) is slated to come online in 2QCY21.

Business performance and outlook

  • Global PVC prices and core delta are expected to remain high until the first half of 2QCY21, and then normalise as major PVC producers come back online in the US; however, Ethylene prices are also expected to decline as new nameplate capacities come online in 2QCY21.

  • The company expects local demand for PVC to remain strong on the back of government support for construction activity.

  • According to the management, if PVC prices continue to rise there is likely to be a decrease in demand – even at the present price levels EPCL was selling PVC at a discount to import parity prices, in order to support the domestic PVC market.

  • The outlook on Caustic market remains bearish, as rising Covid-19 cases in Europe is seen to result in a decline in export orders.

  • In the long term, EPCL aims to increase the per capita consumption of PVC in Pakistan, by promoting other downstream applications of PVC and has made significant investments in their own PVC brand to achieve this.

  • At the moment there are no plans for a new capacity expansion and it will only be considered if there is growth in the local demand for PVC. The LABSA project has been put on hold due to the Covid-19 uncertainty.

  • Management is also confident that they will continue getting gas supply for their co-generation facility; even though the government has decided to discontinue gas supply to captive power plants. The final decision on this, however, is pending as per an audit conducted by the power regulator NEPRA.