Karachi, April 20, 2022 (PPI-OT): EPCL: Recent expansion improves market share
Engro Polymer and Chemicals Limited (EPCL) held it 1QCY22 Analyst briefing yesterday preceded by its result announcement for the quarter where the company posted a PAT of Rs4.7bn (EPS Rs5.19) which remained largely stable on a QoQ basis.
Having captured most of the market of imported PVC, sales momentum in the upcoming quarters is expected to continue as the local PVC market is set to grow further by 7% YoY.
EPCL announced the completion of its Oxy Vent Recycle (OVR) project which will improve the consumption ratio for ethylene leading to savings of approximately Rs150mn per annum. The company also announced debottlenecking of its VCM plant increasing its capacity from 254KT to 300KT.
Rising PVC demand from India reverses price trend
Engro Polymer and Chemicals Limited (EPCL) held its Analyst briefing yesterday to discuss the company performance during 1QCY22 where the company posted a PAT of Rs4.7bn (EPS Rs5.19) which remained stable on a QoQ basis. Along with the result the company also announced a dividend of Rs5/share.
International prices for PVC continued their downward trajectory as was seen in the previous quarter which started to reverse in the latter half of Feb-2022 driven by higher demand from India amid a pickup in the country’s construction and agriculture sector coupled with the Russia-Ukraine war contributing to a rise in commodity prices. As a result of the higher prices along with higher sales volume, the company saw its revenue grow by 12% QoQ to Rs23.1bn during 1QCY22.
Piper and fittings for water and sanitation remained the major use of PVC accounting for 55% of its consumption, although the company reiterated its commitment towards diversifying its uses through its ThinkPVC outlet.
Import substitution facilitated by capacity expansion
With PVC sales clocking in at 62.5KT during the quarter (up from 55KT last quarter), EPCL is on track towards complete import substitution in the domestic market post capacity expansion as total PVC imports reduced down to 2KT for the quarter. As per the management, the local PVC market is set to grow by 7% YoY, which is likely to support the sales momentum in the upcoming quarters although the risk of demand destruction remains intact in case prices continue to spiral upwards.
Ethylene prices keep profitability in check
On the cost side, ethylene prices remained firm during the quarter as well amid rising crude oil prices leading to a declining trend in the PVC-Ethylene core delta despite rising PVC prices and sales volume due to which the company witnessed a dent in its gross margin during 1QCY22 to 33.1% from 35.5% during previous quarter.
Gas supply issues hinder growth in the Caustic market
Caustic sales remained under pressure during the quarter on the back of ongoing production issues mainly relating to gas supply where sales clocked in at 17KT as compared to 18KT last quarter. To mitigate the looming threat of gas supply issues the company currently has 2KT of inventory for Caustic soda and plans to increase it further, although the management remains confident that the gas supply issues are unlikely to linger on.
Upcoming projects
Along with its result announcement for 1QCY22 yesterday, EPCL announced the completion of its OVR efficiency project which will improve the consumption ratio for ethylene leading to savings of approximately Rs150mn per annum. Furthermore, the company announced debottlenecking of its VCM plant increasing its capacity from 254KT to 300KT. COD for the project however, is expected to be achieved in 3 years’ time with a total CAPEX of US$4mn. The project will eliminate the need to import VCM for PVC production. On the other hand, the HTDC and the H2O2 projects are both on track and are expected to achieve COD by start of CY23.