Earnings Report /
Pakistan

Engro Polymer & Chemicals Ltd: 3QCY22 Review: Depressed core delta led to earnings decline

  • EPCL has posted NPAT of PKR2.3bn for 3QCY22 (EPS: PKR2.48); down 27%YoY/3%QoQ, in-line with our expectation PKR2.40.

  • The company also announced an interim cash dividend of PKR2.50/sh vs. our estimated DPS of PKR2.25.

  • Gross margin came in at 29.4%, down by 4.4ppt QoQ, but higher than our expectation of 25.2%.

Intermarket Securities
12 October 2022

EPCL has posted consolidated NPAT of PKR2.3bn for 3QCY22 (EPS: PKR2.48); down 27% YoY and 3% QoQ. The result came in-line with our expected EPS of PKR2.40. The company also announced an interim cash dividend of PKR2.50/sh vs. our estimated DPS of PKR2.25.

  • Net Sales down 24% QoQ and 10% YoY to PKR16.9bn (broadly in-line with our estimated topline of PKR17.4bn), owing to lower sales volume amid muted construction activity during the quarter.

  • Gross margin came in at 29.4%, down by 4.4ppt QoQ, but higher than our expectation of 25.2%. The QoQ decline in gross margin is due to lower core delta, which has retracted from c.US$850/ton in 2QCY22 to an average of US$618/ton in 3QCY22, representing a 27% QoQ decline.

  • Other Expenses clocked in at PKR1.05bn, down 18% QoQ, due to lower exchange losses, in our view. 

  • Finance cost up a sharp 79% YoY and 18% QoQ to PKR872mn, on account of higher interest bearing debt and elevated interest rates during the quarter.

  • Effective tax rate clocked in at 27% versus 25% in 3QCY21 (IMS estimate of 29%). The increase in tax rate is due to 4% super tax impact.

The company has posted a decent result in 3Q despite depleting PVC/Ethylene margins and subdued construction activity. International spreads have moderated recently, which will likely keep a check on earnings in coming quarters. However, the stock has already corrected by 41% since its CYTD peak. In light to recent reduction in PVC/Ethylene, we look to revisit our estimates following the availability of detailed quarterly accounts.