PACRA Maintains the Entity Ratings of Engro Polymer & Chemicals Limited

Engro Polymer and Chemicals Limited (hereafter “EPCL” or “the Company”) retains its position as Pakistan’s sole domestic manufacturer of Poly Vinyl Chloride (PVC) resin, complemented by a diversified Chlor-Alkali product portfolio comprising Caustic Soda, Sodium Hypochlorite, and Hydrochloric Acid. This unique market position, supported by tariff protection on PVC imports, continues to underpin the Company's business risk profile, although competitive pressure arising from import-parity pricing remains a key constraint on pricing flexibility. During CY25, the Company further strengthened its long-term business profile by commissioning the Hydrogen Peroxide plant through its wholly owned subsidiary, Engro Peroxide (Private) Limited, and the High-Temperature Direct Chlorination (HTDC) project. Both projects entered CY26 with improved operational stability and are expected to contribute more meaningfully as they achieve optimal utilization. During CY25, the industry remained under pressure as persistent global oversupply in both PVC and ethylene markets kept the PVC–ethylene spread, the primary driver of EPCL's profitability, at subdued levels throughout the year. At the same time, the continued increase in the domestic captive gas levy materially elevated production costs, although the subsequent reduction in the levy from Mar'26 is expected to provide partial cost relief. Reflecting these industry-wide challenges, the Company's profitability remained under pressure, resulting in a second consecutive year of pre-tax losses despite achieving record domestic PVC sales volumes of 239KT. Nevertheless, 1QCY26 exhibited early signs of recovery, supported by higher sales volumes and an improvement in profitability margins. Going forward, the continued ramp-up of the Hydrogen Peroxide and HTDC projects, together with the implementation of power optimization initiatives, is expected to improve operating efficiencies, diversify earnings streams, and support the recovery in profitability. In line with its ongoing diversification and efficiency enhancement initiatives, EPCL's debt levels increased during CY25. Nevertheless, the capital structure remains predominantly supported by long-term borrowings, with limited reliance on short-term debt. While gross leverage remains elevated, the Company's sizeable cash reserves, maintained as short-term investments, provide an adequate liquidity cushion. The ratings continue to derive support from EPCL's association with Engro Corporation, one of Pakistan's leading conglomerates, whose strong financial profile and demonstrated sponsor support provide additional comfort to the Company's credit profile.
The Company’s ratings depend on the sustainability of its profitability and margin recovery under the prevailing operating environment and on the extent to which this translates into a sustained strengthening of cash flow generation and coverage metrics. Further, adherence to the agreed financial discipline remains crucial. Adequate management of its capital structure and debt payback remains imperative.

About the Entity
EPCL, established in 1997, commenced commercial production in 1999 and is listed on the PSX. The Company is primarily involved in the manufacturing, marketing, and distribution of PVC and allied products, and is a subsidiary of Engro Corporation Limited, which holds 56.19% of the Company's share capital and is itself a wholly owned subsidiary of Engro Holdings Limited. The Board comprises eight members, including the CEO as the only Executive Director, three Independent Directors, and the remaining four are Non-Executive Directors.