Karachi, August 10, 2023 (PPI-OT): EPCL - 2QCY23 Result Review - Super tax erodes the earnings growth

Engro Polymer and Chemicals Limited (EPCL) announced its 2QCY23 results, where the company posted earnings of PkR1.6bn (Basic EPS: PkR1.4), marking a 32%QoQ increase compared to PkR1.2bn (EPS: PkR1.3) in the previous quarter. This growth is primarily attributed to availability of local gas and uptake growth during the quarter. The company also announced an interim dividend of PkR1.5/sh, bringing the 1HCY23 payout to PkR2.5/sh.

Topline rose by 6%QoQ to PkR19.0bn in the quarter, yet remained down 15%YoY. The quarterly increase is likely due to higher uptake volumes and premium pricing (due to less competition from imports amid LC restrictions), while the annual decline is linked to a ~17%YoY drop in international PVC prices.

Gross margins improved significantly by 8.6ppts on a quarterly basis, reaching 28.6% compared to 20.0% in the previous quarter. This enhancement was driven by the availability of cheaper local gas during the period, although in the previous quarter, company operated on more expensive RNLG due to gas unavailability.

Other income clocked in at PkR332mn vs PkR444mn in the previous quarter, reflecting a 25%QoQ decline, possibly due to decreased short-term investments.

Additionally, finance costs increased by 32%/110% QoQ/YoY to PkR1.55bn compared to PkR1.18bn/PkR737mn in 1QCY23/SPLY. This rise was influenced by the higher policy rate and PkR devaluation against the US dollar, given that 14% of the company's long-term debt is LIBOR-based.

Furthermore, tax for the quarter clocked in at PkR1.85bn, ETR of 54.2% for the quarter vs. 29.2% in the previous quarter due to retrospective implementation of super-tax.

Overall, the total earnings for 1HCY23 accumulated to PkR2.7bn (EPS PkR2.7/sh) versus PkR7.1bn (EPS PkR7.5) in the SPLY, reflecting a 61%YoY decrease primarily due to a ~49%YoY decline in core delta margins.