Karachi, August 11, 2021 (PPI-OT): EPCL: announced 2QCY21 EPS of PkR3.44 – Below expectation

Engro Polymer and Chemicals Ltd’s (EPCL) announced 2QCY21 NPAT of PkR3.12bn (EPS: PkR3.44), down 25% QoQ, taking 1HCY21 NPAT to PkR7.26bn (EPS: PkR7.99) vs. PkR206mn (EPS: PkR0.23) in 1HCY20.

The result was much below than our expectation of PkR5.17bn (EPS: PkR5.70), majorly due to lower than expected revenues – we assume low demand resulted in below than 80% of assumed capacity utilization of PVC Line I, II and III.

The company however, surprised with an interim cash dividend of PkR7.0/sh, taking 1HCY21 payout to PkR7.80/sh, translating into ~100% payout vs. 5yr historical payout ratio of 30%.

The result announcement was also accompanied by intimation by management to forego investment in LABSA project (CAPEX: US$6mn or PkR1bn).

Sequential decline in earnings was led by: (i) decline in revenues by 5%QoQ, along with gross margins at 35% in 2QCY21 vs. 40% in the previous quarter, despite 19% QoQ increase in PVC ethylene margins (US$1,004/MT), (ii) 4.8xQoQ higher other expenses and (iii) 27%QoQ increase in finance cost. On YoY basis, the low base effect due to COVID’19 and plant disruption resulted in exponential increase in earnings.

We look forward to the management call before updating our earnings and payout estimates for EPCL. Currently, we have a Buy call on ECPL with our TP of PkR74/sh implying an upside of 30.7% from last close.