Engro Polymer & Chemicals Limited (EPCL) reported a loss in the first quarter of 2024, with its EPS clocking in at -1.21. The company’s gross margins fell to 6.4% and it skipped the dividend. The NIL dividend and loss per share were both a surprise for investors, who were expecting the company to post a moderate EPS with most of it paid out in the form of dividends.
So what went wrong?
A lot of things have gone wrong for the company in the last year or two. But what made them post a loss? There are multiple reasons. Let’s look at each of them in detail.
To start with, the company reported reduced sales. This was down to both a lack of demand and low PVC prices. This trend has been going on for some time now and is unlikely to change anytime soon.
| Item | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 | Q3 2022 |
|---|---|---|---|---|---|---|
| Sales | 16572 | 19195 | 25,011 | 19,041 | 17,977 | 16,904 |
International PVC margins drive the profitability of the company. Just like the local industry, the international PVC-Ethylene margins are also under pressure. During the first quarter of 2023, the average margin stood at $433/ton whereas in the first quarter of this year, it went further down to $303/ton.
The EPCL management does not expect the margins to go down a lot further. But the upside is also not expected anytime soon, especially with elevated crude oil prices keeping Ethylene prices high.
Gas prices have been increased twice in the last 6 months. This was one variable that analysts were not so sure about the impact of. The cost of gas for EPCL stood at Rs. 3000/MMBTU this quarter. During the same period last year, it was Rs. 2500/MMBTU.
This increase in gas prices has put a lot of pressure on gross margins.
EPCL’s other income fell by 37% YoY. Its cash positions and short-term investments went down by 57% YoY. This means the company has not been able to benefit from high interest rates like before.
Finally, the finance cost rose 42% YoY. The company’s borrowing went up by 28% YoY which inflated the finance cost at a time of high interest rates.
Analysts continue to have a negative outlook on the stock, with Foundation Securities’ Dec 24 target price of Rs. 42.1/share reflecting how bad things are for the company at the moment.
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Without demand no hope. but still good it will keep paying dividend if makes profit.
What about it's h2o2 plant? When it will come online?
H2O2 plant should start by June/July. But since H2O2 business environment is bad just like PVC, I don't think EPCL is in any hurry. Even if it starts soon, it won't change the business drastically.
Still no lower lock. It seems there is not much downside. If international margins improve, it will skyrocket like before.
Yes its quite possible that the downside is limited from here on. The company has absorbed two gas price hikes and a quarterly loss, without the share price breaking its previous lows. But I am not so sure if it willl skyrocket anytime soon. Once international margins improve then yes.
All loss making companies which have a reputed name previously, are going up, such as GHNI, GAL, NRL, PIA, DCL, PTCL, etc.
So don't worry EPCL will going higher high in few days