Lahore, January 26, 2018 (PPI-OT):The ratings recognize Engro Polymer’s established foothold in the local PVC segment and in caustic soda market. This emanates from efficient production process, sound technological infrastructure, and effective control environment. EPCL is the only manufacturer of Poly Vinyl Chloride (PVC), having dominant market share. The Company has successfully created liking for its products. Lately, it is enjoying strong margins attributed to improved international dynamics along with incremental domestic consumption; boding well with the overall profitability.
Although EPCL has limited influence on both price ends (i) Ethylene – key raw material, and (ii) PVC – key product, import and anti-dumping duties benefit. On demand side, expanding economy – particularly construction – has led to double digit growth; a trend that is expected to persist. On the Caustic Soda front (the other major product), the company enjoys adequate margins and eloquent market share in the southern region, close to plant location.
The uptick in profits, in turn free cash flows, has yielded favourably for EPCL’s financial profile. This is reflected in efficient working capital cycle and healthy coverages; hence, financial risk stays well managed. Moreover, EPCL’s debt-reprofiling has further eased pressure on its financial risk profile. The ratings also reflect EPCL’s association with one of the country’s leading conglomerate – Engro Corp. This association has benefited the company historically.
EPCL has planned a CAPEX of PKR 10.3bln, addition of PVC by 100K tons, significant debottlenecking of VCM plant on a tune of PKR 7.6bln of which PKR 5.4bln will be raised through fresh equity in form of right share and remaining PKR 2.2bln through debt. Other CAPEX of PKR 2.7bln, funded through internally generated cash and debt. EPCL’s expansionary stance would likely to benefit the company and this is not expected to push up leveraging significantly.
The ratings are dependent upon holding sustained operations and continuity of improved margins. Execution of planned expansion, while, with the new debt to be acquired, maintenance of coverages would remain critical.
For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
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