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Engro Polymer & Chemicals Limited (PSX: EPCL) was incorporated in Pakistan in 1997. EPCL is a subsidiary of Engro Corporation which is a subsidiary of Dawood Hercules Corporation Limited. The company is engaged in the manufacturing, marketing, and selling of Poly Vinyl Chloride (PVC), Caustic Soda, Vinyl Chloride Monomer (VCM), and related products. The company also has a captive power plant and water recycling plant in its integrated chemical complex. The surplus power produced by the company is also supplied to Engro Fertilizers Limited.

Pattern of Shareholding

As of December 31, 2021, EPCL has an outstanding share capital of 908.92 million which is held by 28,995 shareholders. Associated companies, undertakings, and associated companies are the major shareholders of EPCL holding over 67 percent of EPCL’s shares. Within this category, Engro Corporation Limited takes the lead, followed by Mitsubishi Corporation. The general public holds around 16 percent of the company’s shares followed by Mutual funds accounting for 8.12 percent of EPCL’s shares. Insurance companies have ownership of 3.53 percent of the company’s shares while Banks, DFIs and NBFIs represent 1.81 percent of EPCL’s shareholding. The remaining shares are held by other categories of shareholders.

Financial Performance (2018-2022)

In all the years under consideration, 2020 is the only year where EPCL couldn’t boast a topline growth because of the obvious reasons of Covid-19 and the associated protocols. However, 2020 was the year when the company recorded impressive margins, never witnessed before. Moreover, despite the dip in sales, bottomline grew by over 55 percent year-on-year. A glance at the financial statements gives a hint that effective cost control measures in place was the reason for this stellar performance. The suppressed topline was a result of muted offtake of both PVC and Caustic which dipped year-on-year by 15 percent and 27 percent respectively. The impact of low offtake was partially offset by higher PVC prices during the year. EPCL posted an impressive GP margin of 31 percent in 2020 as against 21 percent in 2019. A sizeable dip in the operating expenses coupled with a jump in other income resulted in 53 percent year-on-year growth of operating profit with OP margin clocking in at 29.5 percent in 2020 as against 18 percent in 2019. The operating expenses of EPCL stood at 71 percent of its operating income – the lowest mark since 2015. Finance cost grew on account of expansionary projects undertaken by the company. During the year, the company also availed Islamic long-term financing facility of Rs 1950 million. The NP margin for 2020 was 16.2 percent as against 9.7 percent in the previous year.

2021 proved to be the most fortunate year for EPCL. Increase in PVC and Caustic volumes coupled with high PVC prices which rallied on account of global supply constraints resulted in 98 percent year-on-year growth in the topline with GP margin clocking in at 34 percent. This was despite high cost of imported raw materials on account of depreciation of Pak Rupee. The resumption of general economic activity caused an increase in the selling and admin expenses which remained subdued during 2020. OP margin for 2021 stood at 31 percent as against 29.5 percent in 2020. Low discount rate coupled with repayment of loans during the year enabled EPCL to lessen its financial cost. EPCL’s Debt-to-Equity ratio stands at 42:58 as against 47:53 during 2020. The bottomline of the company grew by 163 percent year-on-year in 2021 with NP margin of 21.5 percent – a level never witnessed before.

As against 2021 where the company enjoyed fat topline and hefty profits, 2022 was a rather depressed year for EPCL. During 2022, the company was able to achieve a topline growth of 17 percent year-on-year despite low PVC prices due to global economic uncertainty coupled with high volatility in the international energy prices. According to the industry reports, topline growth was the result of Pak Rupee depreciation which magnified the value of its export sales. Local demand remained arrested on the back of heavy floods. High cost of sales owing to depreciation of Pak Rupee and high fuel and energy charges resulted in a 3 percent year-on-year drop in the gross profit with GP margin of 28.5 percent. High operating expenses and finance cost put further dent on the bottomline which shrank by 22 percent year-on-year with NP margin of 14 percent.

Future Outlook

Going forward, the company’s margins are expected to shrink further on the back of low demand owing to economic downturn and high inflation with industries shutting down their operations on account of supply bottlenecks amidst import restrictions. While Pak Rupee depreciation may render EPCL products competitive in the global market, the muted demand across Asian and North American markets may not allow EPCL’s export sales to flourish either. Moreover, in order to combat gas shortage, the company has entered into an agreement with SSGC to supply imported gas whose rate is 3 times higher than locally sourced fuel. The company may not be able to fully pass on the impact of cost hike owing to low PVC prices internationally, putting more pressure on the bottomline.


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