Debottlenecking of EPCL’s VCM production facility underway

Karachi, August 15, 2022: Engro Polymer and Chemicals Limited (EPCL) has shared that basic engineering study for debottlenecking of VCM production facility is currently underway, while HTDC and Hydrogen peroxide projects are expected to come online next year.

The company held its corporate briefing session on Thursday. The management believes that sharp currency devaluation and inflationary pressure may lead to slowdown in domestic demand.

The management also expects PVC and Ethylene prices to stabilize post monsoon season and relaxation of COVID-19 restrictions, providing some support to core delta.

It is pertinent to note that PVC prices have witnessed a decline of 24% since Jun’22 against 13% drop in ethylene prices during the same period.

Recent decline in core delta was witnessed on account of slowdown in China and India due to monsoon season.

The management shared that higher fuel prices and tight global RLNG market may pose challenge to availability of gas towards the end of 2022 which is a key input.

Strong headwinds ahead

Post outbreak of COVID 19, PVC-Ethylene core delta witnessed a sharp increase, touching US$1,173/ton (Oct’21) from US$439/ton (Nov’19).

This has been led by both, strong global PVC demand and weak supply side dynamics. Nonetheless, core delta has dropped 56% since its peak to US$ 517/ ton (5th Aug’ 22) as per Bloomberg.

Super tax and FX losses dented profitability

The EPCL posted 2QCY22 results yesterday where the company witnessed a profitability decline of 26%/50% on YoY/QoQ basis. Profit after tax came in at Rs2,339mn translating into an EPS of Rs2.45 for 2QCY22 (1HCY22 EPS: 7.56, -5% YoY). Along with this, the company also paid-out DPS of Rs2.5, taking 1HCY22 DPS to Rs7.50.

On QoQ basis, top-line of the company declined by 4% mainly on account of lower volumes (58.1 KT in 2QCY22 compared to 62.5KT in 1QCY22). On the other hand, despite decline in PVC ethylene core delta (2QCY22: US$784/ton, -5% QoQ) PKR/US$ depreciation supported gross margins.

Overall, profitability declined on account of higher other expenses (FX losses), increased financial charges and imposition of 10% of Super Tax.

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