EPCL - 2QCY23 Result Review - Super tax erodes the earnings growth, (AKD Off the Analyst's Desk Aug 10, 2023)
EPCL - 2QCY23 Result Review - Super tax erodes the earnings growth
Engro Polymer & Chemicals Limited (EPCL) announced its 2QCY23 results, where the company posted earnings of PkR1.6bn (Basic EPS: PkR1.4), marking a 32%QoQ increase compared to PkR1.2bn (EPS: PkR1.3) in the previous quarter. This growth is primarily attributed to availability of local gas and uptake growth during the quarter. The company also announced an interim dividend of PkR1.5/sh, bringing the 1HCY23 payout to PkR2.5/sh.
- Topline rose by 6%QoQ to PkR19.0bn in the quarter, yet remained down 15%YoY. The quarterly increase is likely due to higher uptake volumes and premium pricing (due to less competition from imports amid LC restrictions), while the annual decline is linked to a ~17%YoY drop in international PVC prices.
- Gross margins improved significantly by 8.6ppts on a quarterly basis, reaching 28.6% compared to 20.0% in the previous quarter. This enhancement was driven by the availability of cheaper local gas during the period, although in the previous quarter, company operated on more expensive RNLG due to gas unavailability.
- Other income clocked in at PkR332mn vs PkR444mn in the previous quarter, reflecting a 25%QoQ decline, possibly due to decreased short-term investments.
- Additionally, finance costs increased by 32%/110% QoQ/YoY to PkR1.55bn compared to PkR1.18bn/PkR737mn in 1QCY23/SPLY. This rise was influenced by the higher policy rate and PkR devaluation against the US dollar, given that 14% of the company's long-term debt is LIBOR-based.
- Furthermore, tax for the quarter clocked in at PkR1.85bn, ETR of 54.2% for the quarter vs. 29.2% in the previous quarter due to retrospective implementation of super-tax.
- Overall, the total earnings for 1HCY23 accumulated to PkR2.7bn (EPS PkR2.7/sh) versus PkR7.1bn (EPS PkR7.5) in the SPLY, reflecting a 61%YoY decrease primarily due to a ~49%YoY decline in core delta margins.
Engro Polymer & Chemicals Limited is a chlor vinyl chemical company. The principal activity of the Company is to produce and market chlor-vinyl products, which include poly vinyl chloride (PVC), vinyl chloride monomer (VCM), caustic soda, hydrochloric acid and sodium hypochlorite. The Company operates through three segments: poly vinyl chloride (PVC) and allied chemicals, caustic soda and allied chemicals, and power supplies. The poly vinyl chloride (PVC) and allied chemicals segment manufactures and sells PVC and allied chemicals to various industrial customers, including pipe manufacturers, shoe and packaging industry. The caustic soda and allied chemicals segment manufactures and sells caustic soda and allied chemicals to textile and soap industry. The power supplies segment supplies surplus power generated from its power plants to Engro Fertilizers Limited. The Company manufactures and markets over four grades of PVC under the brand name SABZ.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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