Karachi, April 15, 2022 (PPI-OT): EPCL and EFERT: 1QCY22 Result Previews

EPCL to post 1QCY22 EPS of PkR3.17: Engro Polymer and Chemicals Ltd (EPCL) is slated to announce its 1QCY22 result (18th Apr’22), where we expect the company to post 1QCY22 NPAT of PkR2.9bn (EPS: PkR3.17), as compared to PkR4.1bn (EPS: PkR4.56) in the same period last year. For the outgoing quarter, we expect PVC offtakes to remain flat due to seasonal slowdown in construction activity (cement sales, down 5.3%QoQ in 1QCY22). Hence, in our estimates, we have assumed PVC sales of 55K MT for 1QCY22, while PVC – Ethylene margins for 1QCY22 average at US$863/MT, down 22%QoQ. The prices of ethylene have skyrocketed due to massive volatility in oil markets following Russia’s invasion of Ukraine and force majeure declared by Korean company, putting immense pressure on PVC margins in 1QCY22. As a result, our estimate for the gross margin remains at lower side at 27.8% vs 35% in 4QCY21. To highlight, global PVC prices rose by only 4.3/28.5% QoQ/YoY to hover around US$1,430/ton while Ethylene prices rose by staggering 39/7% QoQ/YoY to hover around US$1,405/ton. We also foresee increase in finance cost of 54%YoY due to sharp hikes in interest rate and other income of PkR376mn, up 29.1%YoY. Finally, we expect EPCL to announce cash dividend of PkR3.0/sh.

EFERT’s earnings to clock in at PkR3.4/sh: We expect Engro Fertilizers Limited (EFERT) to post earnings of PkR4.5bn (EPS: PkR3.4) in 1QCY22 as compared to PkR5.7bn (EPS: PkR4.3) in same period last year. This depicts a decline of ~21%YoY on account of 17%YoY lower assumption of urea offtakes for the quarter, at 500k MT (2MCY22 urea offtakes currently stand at ~378k MT). To recall, EFERT sold ~602k MT urea in same period last year due to pre-buying spree by farmers before the prices were increased. Secondly, we expect the gross margin this quarter to hover at 31% as compared to 39.3% in corresponding period last year as the company now accrues gas rate in Enven plant at normal fertilizer policy rate of PkR302/mmbtu. In addition to this, Brent Oil price has averaged at ~US$93/bbl (vs ~US$61/bbl in SPLY) and the local currency has devalued by 12%YoY on average during this time which implies the gas rate of ~PkR980/mmbtu under PP-12 compared to ~PkR745/mmbtu in SPLY. We also expect the company to announce 1st interim dividend of PkR3.0/sh. We currently have a Buy rating on EFERT with Dec’22 TP of PkR103/sh, implying an upside of 9.2% and DY of 16% at last close, a TSR of 25%.