The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of Engro Polymer & Chemicals Limited

Rating Type Entity
(14-Jul-23 )
(16-Jul-22 )
Action Maintain Upgrade
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Engro Polymer and Chemicals Limited (“EPCL” or “The Company”) ratings reflect an established foothold in the manufacturing of Poly Vinyl Chloride(PVC) resin, and Chlor Alkali products (Caustic Soda, Sodium Hypochlorite, and Hydrochloric Acid). EPCL is the sole manufacturer of PVC resin in domestic market., The Company has successfully completed a series of capacity expansion and efficiency projects. During CY22 Oxy Vent Recycle (OVR) project has been completed, whereas High-Temperature Direct Chlorination (HTDC) project is also near to its completion stage. The Company was able to maximize its market share and delivered the highest-ever domestic sales volume of 231KT of PVC resin in CY22, which translated into ~17.2% revenue growth as compared to CY21. However, during 1QCY23 prices of PVC remained under pressure in South Asian Region, due to the slower-than-expected economic recovery in China and product over-supply situation in India. On the flip side, Ethylene (major & key raw material) prices kept an upward pressure due to supply crunches and OPEC+ decisions, resulting in a decline in core delta, hence lowering the margin and profitability. Currently, the demand side is also softened on the back of a decline in consumer buying power and increased cost of construction. To combat these challenges, management is focusing on strengthening its PVC export volumes and developing downstream applications of PVC through its wholly-owned subsidiary Think PVC (Pvt.) Limited. On the diversification front, the management is expected to achieve mechanical completion of the Hydrogen peroxide plant in CY23, which will add further diversity to EPCL’s product mix. Currently, the Company’s debt profile is stagnant amidst its phases of expansion, though, it is being aptly managed by having a mix of concessionary loans (TERF and LTFF) and conventional borrowings. The policy rate has been increased up to 22%, further elevating the debt service cost in the future as long-term borrowings dominate the total borrowings. The company is exposed to foreign exchange risk, due to high dependency on imported raw materials, however, forex risk arising from the foreign currency loan on the company’s books has been neutralized through a synthetic hedge transaction that EPCL entered into 2020. The Company enjoys a very strong liquidity position on the back of sizable deposits and liquid assets, supplementing its cashflows. EPCL's association with one of the country's leading conglomerates – Engro Corp – and the very strong financial profile of the sponsors lend further support to the ratings.
The ratings are dependent upon the company’s ability to sustain its position as a market leader, further strengthen its sales volumes through exports, and maintain sufficient margins and profitability with prudent financial discipline. Timely completion of the remaining planned expansion projects, while retaining stable coverages would remain important. Adequate management of its capital structure and debt payback remains imperative.

About the Entity
EPCL, established in 1997, started commercial production in 1999. The Company is listed on Pakistan Stock Exchange. EPCL is primarily involved in the manufacturing, marketing, and distribution of PVC and its allied products. EPCL is a subsidiary of Engro Corporation Limited (ECL) having a majority stake (56%). The other major shareholder is Mitsubishi Corporation (11%). The Board comprises of 9 members including the CEO - Executive Director, one member represents Mitsubishi Corporation, three are independent directors and the remaining are Non-Executive Directors. Mr. Ghiasuddin (CEO) of Engro Corp.

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