In CY23, EPCL experienced a substantial 21% YoY decline in net profits, amounting to PKR 9.23 billion (EPS: PKR 9.45), marking a significant decrease from the prior year’s PKR 11.71 billion (EPS: PKR 12.39).
Concurrently, the cost of sales witnessed a 4% YoY increase to PKR 60.49 billion during this period, with the company attributing the decline in profitability to factors such as increased inflation, devaluation, lower core delta, and adverse budgetary impacts.
The company’s total revenue reached PKR 81.22 billion, reflecting a 1% YoY decline from the preceding year. Segment-wise, PVC generated PKR 69.81 billion, and Chlor Alkali contributed PKR 11.03 billion.
Profitability was distributed as follows: PVC at PKR 6.24 billion, Chlor Alkali at PKR 2.62 billion, and others at PKR 69 million in CY23.
In the same period, EPCL sold 221KT of PVC, a decrease from the previous year’s 241KT in CY22. The domestic PVC market faced challenges due to political uncertainty, reduced construction activity, higher inflation, and devaluation.
Similarly, EPCL sold 66KT of liquid and 12KT of Flakes (Total of 78KT of Chlor Alkali), 3% higher than the previous year. Notably, EPCL reported a surge in exports to USD 26 million, marking a 20% YoY increase.
Simultaneously, gross profit decreased by 13% YoY to PKR 20.73 billion from PKR 23.71 billion in the same period last year. On the global front, Chlor Alkali prices remained under pressure due to oversupply. domestic market margins improved, driven by a favorable textile export market, leading to an overallpickup in caustic demand in 2HCY23. Supply to the domestic Export-Oriented sector was maintained at 78% in CY23.
PVC international prices remained within the range of USD 770-850 per MT in CY23 due to lackluster markets post-scheduled maintenance bottoming out in October.
The market breakdown for PVC applications in CY23 was: Fittings (55%), Film & sheet (15%), Profile (8%), Cable Compound (8%), Shoe (6%), Flexible Hose (5%), Others (3%).
Ethylene prices experienced volatility due to instability in the global and gas markets in CY23. Starting March, Ethylene prices began to rise due to supply tightness and an increase in crude prices. Operating rates of steam crackers declined to 78% during the year.
Lackluster downstream PPE demand led to prices remaining rangebound once supply disruptions eased. Management shared that the Hydrogen Peroxide project’s completion is expected in 2QCY24.
The management highlighted that the availability of gas at competitive prices remains a key challenge. EPCL experienced fluctuations in gas rates and availability in CY23, leading to an agreement with SSGC for uninterrupted gas supply at a blended rate of 25:75 from August to November 2023. In December, the RLNG blended ratio was revised upwards to 40:60 for captive and 20:80 for industrial gas.
Despite a significant 50% decline, other expenses totaled PKR 1.71 billion in CY23, down from PKR 3.45 billion the previous year. Meanwhile, other income increased by 18% YoY to PKR 1.71 billion in CY23.
Due to higher policy rates, EPCL’s finance costs rose 36% YoY to PKR 4.20 billion from PKR 3.08 billion. Profit before taxation decreased by 16% YoY to PKR 14.10 billion in CY23, with taxation declining by 3% YoY to PKR 4.87 billion during the same period. Concerning dividends, the management emphasized the priority of stabilizing markets before considering payout.
Going forward, the company anticipates operational sustainability and timely completion of ongoing projects. Economic stability is expected to support operations. However, bearish international prices due to oversupply might continue to impact PVC sales.
Domestically, the construction sector is expected to rebound after the elections. Additionally, higher crude oil prices might increase ethylene prices to USD 1,000 per ton. The management anticipates improving margins in 2HCY24 due to the strengthening of demand.
Important Disclosures
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