Home »Brief Recordings » Engro Polymer & Chemicals

Engro Polymers & Chemicals Limited (EPCL) is a subsidiary of Engro Corporation Limited, a subsidiary of Dawood Hercules Corporation Limited. Incorporated in 1997, EPCL manufactures and markets Chlor-Vinyl products which include Polyvinyl Chloride (PVC), Vinyl Chloride Monomer (VCM), Caustic Soda, Hydrochloric Acid and Sodium Hypochlorite.

Since it operates in the Chlor-Vinyl segment, much of Engro Polymer's growth is influenced by the overall macro-economic activity of Pakistan. It's profitability is determined not only by domestic market demand but also by international vinyl chain prices, energy prices, competition in Chlor-Alkali market, operational efficiencies and currency fluctuations.

Financial performance 2016 was a prosperous year for Engro Polymer with profit after tax of Rs 655 million compared to the loss of Rs 649 million in 2015.

Engro's profitability is driven largely by improvements in vinyl chain margins. The fourth quarter of 2016 saw a relative tightness in supply as against previous years, which helped drive PVC prices upwards. On the other hand, ethylene prices remained fairly stable due to supply rationalisation. Overall, there was an increase in the PVC-ethylene spread that drove profits.

The growth in PVC sales volume by 12 percent from 2015 to 2016 also helped boost its profitability, aided by operational optimization and business efficiencies. Nearly 80 percent of domestic consumption of PVC is of Engro's brand 'Sabz'.

In 2016, the demand for PVC grew almost by 17 percent. Scrap import substitution and increased penetration drove the increase in PVC sales revenue. The highest ever sales of hypochlorite and PVC were achieved at 2200MT and 167KT respectively, in 2016.

Other than PVC, caustic soda is one of the EPCL's core offering. While the market remained competitive throughout 2016, EPCL maintained its leading position in the south with an overall market share of 32 percent.

EPCL raised Rs 5.75 billion in long term debt that was used to re-profile its existing long-term debt and payoff short-term debt. The company plans to focus on its expansion and invest in other projects, while repayments are not expected to place undue pressure on cash flows. The tenor of these loans is generally 7 years with a grace period of 2 years. The new debt offers softer terms of covenants and has a mark-up spread of 0.8 percent.

Half yearly performance 2017 EPCL announced profit after tax of Rs 1.04 billion in the first half of this year (read "Engro Polymer - continuing its upward trajectory" published on 7 August, 2017). The increase in profit was 28 times higher than the corresponding period last year. EPCL's EPS increased 26 times since 1HYCY16 to 1.57.

Operations PVC and VCM production was at its highest levels ever at 172KT and 174KT respectively in 2016. Furthermore, it also imported its first ever ethylene cargo from USA in its efforts to diversify supply base of its key raw material.

Engro Polymer got approval for increase in capacity for de-bottling. Currently, it is working towards increasing production capacity to 195KT by end of 2017 through plant de-bottling activities. This is an increase of 14.7 percent from its current capacity of 170 KT. With its current capacity, 20 percent of PVC demand is being met from imports. After the increase in capacity, EPCL should be able to increase its market share further.

Market overview Global PVC downstream demand stood close to 42 million metric tons in 2016. Though for most of the year the PVC market continued to be oversupplied, the cumulative oversupply declined slightly towards the end of the year.

In terms of consumption Pakistan, Asian demand accounted for 66 percent of global demand in 2016. The bulk of this demand was contributed by Northeast Asia, which accounts for 47 percent of the global demand. China accounts for 85 percent of Northeast Asia's demand, despite its lower economic growth.

In terms of consumption, Pakistan has one of the lowest PVC resin consumption per capita in the region of 1.03kg. India's per capita consumption is 1.7kg. The low per capita consumption indicates that there is significant potential for growth.

In 2016, international PVC prices ranged between $720per ton to $970 per ton. Other than China, most markets witnessed stronger than expected growth rates. Prices resumed their positive trajectory in the second quarter of 2017.

Stock performance Given the turnaround it experienced in 2016, it is no surprise that EPCL's performance is better than KSE 100. The recent half yearly result posted a profit after tax of Rs 1.04 billion, while profit after tax in 2016 was Rs 655 million. If EPCL manages to maintain its performance, its year end profit after tax for 2017 could be 4 times that of last year. This has reflected well on its share price.

Future outlook There is a strong demand in the construction sector in Pakistan with planned investments in infrastructure projects, spending of Public Sector Development Program and CPEC operations under way. These factors are expected to continue being catalysts for Engro Polymer growth. Since last year, its profitability has increased significantly.

However, given the raw materials used for production, EPCL continues to be subject to uncontrollable factors such as shrinking of vinyl chain margins, increased energy prices (especially gas) and currency volatility. Unfavourable changes in the international and domestic market could reverse EPCL's good fortune.





==============================================================================

Key Ratios 2016 2015 2014 2013 2012

==============================================================================

Profitability (%)

Gross Profit Ratio 17.22 12.46 7.65 19.97 16.87

Net profit/(loss) to sales 2.86 -2.92 -4.27 2.92 0.24

Return on Equity 10.96 -12.24 -17.11 10.34 0.81

Liquidity Ratios (no. of times)

Cash flow from operations to sales 0.19 0.01 0.12 0.17 0.14

Current Ratio 0.79 0.5 0.58 0.71 0.57

Quick Ratio 0.32 0.18 0.2 0.27 0.17

Capital Structure (no of times)

Interest Cover Rate 2.27 0.68 -0.35 1.98 1.1

Long term Debt to Equity Rate 1.47 0.99 1.03 1.08 1.22

Investment Ratio

PE Ratio (no. of times) 5.36 -9.37 -12.76 8.05 0.69

EPS Rs. 0.99 -0.98 -1.53 1.08 0.07

==============================================================================



Source: Company accounts



the author

Top
Close
Close