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Engro Polymer & Chemicals Limited released its financial statement for the Calendar Year 2023, revealing a challenging year for the company as it witnessed a significant decline in revenue by 1.0%, gross profit by 12.55%, and net profitability by 21.2%. The driving factors behind this include high inflation, geostrategic tensions, energy price uncertainties, and disruptions in critical shipping routes. Moreover, administrative expenses widen by 21.66% to stand at Rs1.6 billion in CY23 from Rs1.32 billion in CY22. The increase in inflation, currency depreciation, declining foreign exchange reserves, hike in energy prices, and political instability are all blamed for this hike in expenses.

Additionally, during CY23 a decline of 7.59% was observed in operating profit, reaching Rs18.29 billion from Rs19.79 billion in CY22. The company’s profit before tax slipped to Rs14.09 billion during CY23, reflecting a reduction of 15.65%. Earnings per share also decreased from Rs9.69 in CY22 to Rs7.64 in CY23, indicating that investors' interest in the company's stocks is waning.

Historical Trend Analysis

The historical trend of the company reveals that the net revenue kept on growing from Rs37.8 billion and Rs82.06 billion, but declined slightly to Rs81.27 billion in 2023. In the case of gross profit, it grew to the highest of Rs24.03 billion in 2021. However, it contracted to Rs23.7 billion in 2022 and Rs20.7 billion in 2023.

Starting from a Rs6.8 billion operating profit in 2019, Engro Polymer & Chemicals Limited widened to a peak of Rs21.9 billion in 2021. However, it continued to decrease to Rs19.78 billion in 2022 and Rs17.9 billion in 2023. The company recorded the highest net profit of Rs15.06 billion in 2021 and the lowest of Rs3.69 billion in 2019. In 2023, Engro Polymer & Chemicals Limited earned a net profit of Rs8.9 billion.

Profitability Ratios Analysis

From 2019 to 2020, there is an increasing trend in the gross margin from 21.42% to the highest of 34.33%, during the five years. In 2022, the company's gross profit fell to 28.89% and continued to decline in 2023, reaching 25.51%.

Following a similar pattern, the net margin started at 9.77% in 2019 and reached its highest point of 21.51% in 2021. However, in the subsequent years, it kept on decreasing to 14.24% in 2022 and 10.99% in 2023. This was because of price fluctuations and rising costs during the period.

The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) rose from Rs8.3 billion in 2019 to the highest of Rs24.17 billion in 2021, showcasing lower operational costs and growing profit. Whereas, it slipped to Rs22.8 billion in 2022 and again to Rs21.5 billion in 2023, indicating lower profit generation from operations and hurdles in cash flows.

Liquidity Ratios Analysis

The current ratio calculates how well a business can pay its short-term debts with its current assets. A ratio below 1.2 puts the company at greater risk of not being able to pay its short-term obligations. On the other hand, a ratio between 1.2 and 2 and above is generally regarded as safe. With a ratio of 1.12 in 2018, the company’s current ratio improved to 1.58 in 2020 and 1.39 in 2021. This shows that the company is deemed reasonably safe as it has sufficient current assets to meet its short-term liabilities. Nevertheless, the ratio fell to 1.1 in 2022, indicating a decrease in current assets relative to liabilities. Furthermore, it stood at 1.02 in 2023, showcasing a rise in current liabilities over the time frame.

Similarly, the quick ratio indicates the ability of the company to fulfil its obligation. It remained below 1 in 2019, 2021, 2022, and 2023, reflecting the lesser ability of the company to cover its obligations. However, a quick ratio of 1.07 was registered in 2020, reflecting ample assets to cover current liabilities.

Future Outlook

Looking forward the company is optimistic about the future. To improve efficiency and the product line the company is working on initiatives, such as the Hydrogen Peroxide Plant and High-Temperature Direct Chlorination.

Peaking of interest rates, the company anticipates a rebound in the nation's building activity, which will enhance domestic demand for polyvinyl chloride (PVC). Furthermore, in the future, declining interest rates and the strengthening economic outlook of China and India will support PVC dynamics globally.

Company Profile

Engro Polymer and Chemicals Limited is a subsidiary of Engro Corporation Limited. The company's primary operations are the production and distribution of caustic soda, vinyl chloride monomer (VCM), and polyvinyl chloride (PVC). It also provides Engro Fertilizers Limited with excess power produced by its power plants.

Credit: INP-WealthPk