In line with its growth trajectory since 2016, Engro Polymer & Chemicals Limited ended the calendar year with a bang, posting a triple digit increase in their bottom line. The growth in profits started at the top with an 11 percent increase in prices to $1161 per ton compared to last year.
Increase in prices was driven by the impact of Hurricane Harvey that closed down plants in Texas, the petrochemical hub of America. Decrease in globally supply increased prices of PVC internationally boosting EPCL’s revenue. Furthermore, EPCL’s de-bottlenecking resulted in an increase in production of 17,000 tons that was consumed by increase in downstream demand.
Demand has increased due to the upsurge of construction activity stemming from CPEC and positive investor sentiment. PVC demand has been rising with market size increasing by 33 percent as estimated by EPCL. Higher prices and growth in volume resulted in a significant increase in sales.
Despite PVC margins declining in the last quarter of this year, cost of sales decreased due a wider spread between PVC prices and ethylene costs. On average PVC margins increase by 3.5 percent as compared to last year, rising to $320 per ton. Hurricane Harvey increased international ethylene prices along with PVC but since EPCL’s bulk of purchases are regional, where there had been a supply glut previously, the company was able to increase its spread. Production efficiencies also contributed to boosting gross profit margin.
Exchange rate losses due to devaluation of currency and higher oil prices that increased distribution expenses were mostly offset by increase in other income.
Though the overall results are glowing for CY17, brokerage houses have posted lower 4QCY17 results due to higher ethylene prices which resulted in lower core delta. In the current quarter, PVC margins have risen by nearly 30 percent as compared to the same period last year.
EPCL announced Rs10 billion expansion plans which include increasing capacity of VCM (raw material for PVC), PVC, caustic soda and upgrading its power plant. The bulk of this expansion will be through issuance of right shares of approximately Rs5.4 billion and Rs2.2 billion is expected to be raised through debt.