JS Securities Limited – JS Research (October 20, 2021)

Karachi, October 20, 2021 (PPI-OT): EPCL: Corporate briefing session key takeaways

Engro Polymer and Chemicals Limited (EPCL) held its corporate briefing session on Monday to discuss 9MCY21 results and the outlook of the company. We present key takeaways from the session.

Engro Polymer and Chemicals Limited (EPCL) announced its 3QCY21 result on 18th Oct, 2021 wherein the company posted consolidated earnings of Rs3.1bn translating into an EPS of Rs3.42 (66% YoY). Primary reason for the increase in company’s profitability was higher YoY PVC volumetric sales due to higher capacity being available this year post expansion. The company also announced a dividend of Rs3/share alongside the 3QCY21 result taking the payout to date to Rs7.8/share.

EPCL achieved its highest ever quarterly sales and its total market share in the PVC segment for 9MCY21 stood at 94% vs. 64% in the SPLY. Company also exported 16k tons of PVC and 5k tons of Caustic Soda in the international market. PVC sales increased during the period despite higher prices which depicts that there is ample demand in the market.

The company’s market share in the Caustic segment was 33% in 1HCY21 which decreased to 30% for the period of 9MCY21, as a result of annual turnaround executed during August. The company is optimistic that it will regain the lost share in the last quarter.

PVC prices have been at historical high levels this year. PVC-Ethylene core delta for the third quarter stood at US$905/ton while YTD Core delta stands at around US$1,022/ton.

PVC price increase has outpaced the rise in Ethylene prices, which move in-line with oil prices, owing to global supply disruptions, increased demand in the region post ease in lockdown, lower production from China due to power rationing and Hurricane IDA after-effects which wiped off 60% of PVC supply on US Gulf Coast. This has resulted in increased primary margins for the PVC manufacturer. The management expects bullish trend in PVC prices to continue over reasons cited above.

According to the management, the OVR (Oxy Vent Recycling) and HTDC (High Temperature Direct Chlorination) plants are expected to come online in CY21 and CY23, respectively. On the other hand, company’s US$30-35mn H202 plant with a capacity of 26k tons is expected to come online by 1HCY23.

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