Earnings Report /
Pakistan

Engro Polymer & Chemicals Ltd: 1QCY22 review – higher-than-expected volumes lead to earnings beat

  • EPCL has posted NPAT of PKR4.7bn for 1QCY22 (EPS: PKR5.19), up 14% yoy and 1% qoq, against our expected EPS: PKR4.17

  • Major deviation came from higher-than-expected PVC volumes and better spreads lead to earnings beat

  • The company also announced an interim cash dividend of PKR5/sh vs. our estimated DPS of PKR4

IMS Research Team
Intermarket Securities
19 April 2022

EPCL has posted NPAT of PKR4.7bn for 1QCY22 (EPS: PKR5.19), up 14% yoy and 1% qoq, against our expected EPS of PKR4.17. The major deviation came from higher-than-expected PVC volumes and better spreads. The company also announced an interim cash dividend of PKR5/sh vs. our estimated DPS of PKR4. Along with the result, the company has announced the approval of Capex US$4.0mn de-bottlenecking project (VCM production to 300KT per annum). We await the company’s analyst briefing to shed more light on this.

Key takeaways from 1QCY22 result include:

  • Net Sales have clocked in at PKR23.1bn (higher than our estimated topline of PKR19.2), up 12% qoq and 48% yoy amid rising PVC prices in the international market and higher volumes.

  • The company has posted Gross Margins of 33%, down 6.7ppt yoy and 2.3ppt qoq. The decrease in GMs is due to realized PVC-Ethylene spreads reducing from their all-time high levels of c.US$1,145/ton to US$862/ton in 1QCY22, in our view. That said, GMs are slightly higher our expectation of c.32%.

  • Other Expenses clocked in at PKR843mn, down 4% qoq, but up almost c.6.0x yoy due to a low base effect. This came in higher than our expected expense of PKR484mn, where the deviation may be attributed to exchange losses, in our view. PKR depreciated over 3.8% against the USD during the period. We await detailed financials for more clarity.

  • Finance cost of the company clocked in at PKR606mn, up 21% qoq and 51% yoy, despite the company taking advantage of concessionary loans via LTFF. We think EPCL has likely increased short-term borrowing again during the quarter, while interest rates were also rising.

  • Effective tax rate has clocked in at 25% in 1QFY22 vs 28% in 1QCY21.

The company has posted exceptional results in 1Q and has beat our estimates and market consensus; while the payout shows confidence from EPCL about future earnings, even though international spreads have recently moderated slightly. International PVC-Ethylene spreads are likely to remain healthy (albeit lower than present levels) and keep the company profitable; where we expect CY22/23f spreads to average at US$650/600 per ton (currently near US$680/ton). It is important to take into account that the company’s stock price has increased by 47.5% CYTD, on the back of resilient spreads and strong payout.