Karachi, 16 Oct 2023: Engro Polymer and Chemical Limited (EPCL) is forecasted to see its Earnings Per Share (EPS) for 3QCY23 enhance sequentially to Rs2.30, marking an increase of 34% QoQ, as per a research report from JS Securities Limited. The company's total EPS for 9MCY23 is projected to reach Rs5.32, indicating a 48% YoY decline. EPCL is also anticipated to declare a dividend per share (DPS) of Rs1.80, culminating in a 9MCY23 DPS of Rs3.80.
One of the contributing factors to the elevated earnings is the consistent margins, which will likely counterbalance the impact of a higher gas cost for the majority of the quarter. Financial charges expected to rise will probably be counteracted by normalized taxes, in contrast to the one-time retrospective super tax registered in 2Q.
However, potential headwinds are on the horizon for EPCL. An impending hike in the industrial gas tariff might dent the company's margins. Moreover, with the correlation between crude oil prices and Ethylene prices, an upswing in Ethylene prices is plausible, following heightened oil prices due to disturbances in the Middle East. This could exert additional strain on the company's primary margins.
Engro Polymer and Chemical's board is scheduled for a meeting on October 17th, 2023, to discuss the 3QCY23 results. The company's gross margin for the quarter is expected to remain consistent, even with elevated gas prices throughout the quarter. The company also faces a rising trend in gas prices and dampened demand in the construction sector.
To adapt, EPCL's management is contemplating an export-centric approach to reinforce their global market presence. However, this might mean a trade-off with diminished profit margins compared to domestic sales.
The research report from JS Securities Limited underscores a Sell recommendation on EPCL's stock, citing apprehensions about the diminishing demand in the local PVC market and the overarching global oil market. For CY23 and CY24, their EPS estimates result in a Price to Earnings ratio of 6.7x and 4.7x, respectively.