With double digit growth in the top line and a triple digit jump in the bottom line, Engro Polymer and Chemicals Limited (EPCL) have had a smashing year ended December 2018. Though the company has performed well operationally as well, a significant chunk of its profit was from a non-operational source.

The company's other income jumped by over Rs1 billion in 2018. This was mostly because the company recognized insurance claim pertaining to business interruption during 2017, as per company sources. The interruption was due to non-supply of ethylene by its primary supplier.

Independent of the insurance claim, the company has posted strong results. Growth in top line was volumetric as well as price driven. In the first half of 2018, polyvinyl chloride (PVC) demand in the country grew by double digits. As EPCL is part of the construction chain, slowdown in the economy led to drop in PVC demand resulting in an average of 7 percent annual market growth in 2018. Successful de-bottlenecking allowed the company to produce highest ever amount of PVC as per its quarterly report for 9MCY18.

International PVC prices rose last year, and as EPCL's prices are linked with global prices, total revenue received a boost from price as well as quantity. Recent reports from Foundation Securities brokerage house indicate that amply supply from the Middle East and South East Asia put downward pressure on ethylene prices, the core raw material of EPCL's main offering PVC. This, along with higher PVC prices, increased the spread between the two and resulted in a higher gross profit margin.

Among expenses, other operating expenses saw the highest increase in part because of foreign exchange loss but mostly due to higher Workers Welfare Fund and Workers' Profit Participation Fund which are linked to overall profitability of the company.

The company is working towards Rs10.3 billion expansion plan for its production plants of PVC, Vinyl Chloride Monomer, and caustic soda. EPCL has raised Rs5.4 billion through rights share issue and $35 million for International Finance Corporation, a member of the World Bank Group.

As per recent company notices to the bourse, EPCL also issued a Shariah-compliant Sukuk of Rs8.75 billion in January this year with the purpose of re-profiling its long term loans. The company also plans to enter into the hydrogen peroxide segment to capitalise on available hydrogen which is derived as a by-product of existing processes. Given its expansion plans, it appears that EPCL may remain on its growth trajectory.

Copyright Business Recorder, 2019