Engro Polymer Chemical Limited reported 1Q CY13 EPS of Rs0.4 – Global Research
By: Yousuf Rahman,
Global Securities Pakistan Ltd.
Engro Polymer Chemical Limited (EPCL) held its analyst briefing on Apr 29’13 to discuss its financial results for 1Q CY13. EPCL posted earnings of PKR 262mn (EPS: PKR 0.40) during 1Q CY13, down by 35% YoY compared with earnings of PKR 414mn (EPS: PKR 0.62) during 1Q CY12. This decrease was primarily on the back of an insurance claim during 1Q CY12 with an after tax effect of PKR 275mn (EPS impact: PKR +0.41), thereby lifting the company’s earnings in the comparable period last year.
PVC prices for the quarter averaged USD 1,079/MT whereas Ethylene prices stood at USD 1,391/MT during the same time period. As a result, PVC-Ethylene margins stood at USD 383/MT for 1Q CY13 against USD 311/MT during 4Q CY12.
PVC prices were higher during the quarter because of rising demand post winters coupled with PVC plant shutdowns in Malaysia.
Ethylene prices were higher internationally because of production crises in the Middle East. Moreover, crude oil price had risen considerably during the quarter causing the international price of ethylene to follow suit.
The company’s market share stood at 78% during the quarter and the company has plans to further expand its market by targeting its product towards the windows and the pharmaceutical industry.
Margins of Engro Polymer Chemical Limited’s PVC exports averaged USD 150/MT and margins of its VCM exports averaged USD 100/MT. A large portion of VCM was exported to India.
PVC prices are anticipated to soften in the coming quarters because of the monsoon season; however, caustic soda prices are expected to remain strong because of strong demand from the textile sector.
Caustic Soda prices during the quarter averaged PKR 23,000/MT and Sodium Hypochlorite averaged PKR 11,500/MT during the period.
The latest inventory of Ethylene utilized by EPCL is estimated to averaged USD 1,300/MT, lower by almost USD 100/MT. Such a cost is likely to push up the company’s PVC – Ethylene margins.
Currently, the company is going through with a PVC de-bottlenecking process, which is likely to enhance EPCL’s PVC annual production capacity by 4,000 to 5,000 MT.
As planned, Engro Polymer Chemical Limited (EPCL) began its sale of hydrogen gas and hydrochloric acid during the quarter. When asked if the company would continue selling Hcl over EDC, the management said that margins will likely play a substantial role in determining the quantity of EDC or Hcl sales.
VCM target for CY13 is set at 165,000 MT, up by 13% YoY from CY12’s VCM production. For its long-term plan, the company wants to match PVC production with VCM production as PVC provide a substantially higher margin compared to other alternatives (e.g sale of VCM).
The company has plans for a hot-water charging and chillers project in its PVC production facility. Both these plans are anticipated to decrease the company’s fuel and power costs substantially. Hot-water charging project is estimated to come online by Jul13 and the Chiller’s project is estimated to begin function by Jan14.
The company has plans to take additionally debt of PKR 1.4bn. PKR 900mn will likely be for the PVC plant’s capacity expansion, while PKR 500mn will be utilized for debt restructuring. With an estimated capacity enhancement of 30,000 MT annually, the company anticipates this increase to have an after tax earnings impact of PKR 3.5bn over the course of 5 years.