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Engro Polymer & Chemicals Limited recently released its financial statement for the first half (January-June) of the ongoing calendar year 2023, posting a significant decline in revenue, gross and net profitability because of the substantial macroeconomic challenges in the country. The company posted a total revenue of Rs37.02 billion in 1HCY23 compared to Rs45.4 billion in 1HCY22, constituting a decline of 18.5%. This is because of lower volumetric sales and lower Polyvinyl Chloride (PVC) prices.  Likewise, the gross profit fell by 40.47% to Rs9.04 billion in 1HCY23 from Rs15.19 billion in 1HCY22, showing a rise in the cost of production.

This was attributed to the rise in inflation, currency depreciation and restrictions on the opening of Letters of Credit to import raw material. Engro Polymer and Chemicals is a subsidiary of Engro Corporation Limited. The major activities of the company are to manufacture and sell PVC, Vinyl Chloride Monomer (VCM) and caustic soda. It is also engaged in supplying the surplus electricity generated from its power plants to Engro Fertilizers Limited.

Furthermore, the administrative expenses went up to Rs603.3 million in 1HCY23 from Rs503.87 million the previous year, showing a rise of 19.75%. The operating profit decreased significantly to Rs7.8 billion from Rs13.12 billion in 1HCY22, posting a decline of 40.49%. Similarly, the profit-before-tax reduced by 56.83% during the period under consideration.

The company’s net profit dropped a considerable 61.1% to Rs2.74 billion during the period under review compared to Rs7.05 billion over the same period last year. The earnings per share also fell to Rs2.27 in 1HCY23 from Rs5.83 in 1HCY22, reflecting the decreasing interest of investors in the company’s stocks.

Historical analysis (current ratio)

The current ratio estimates a company’s ability to use its current assets to cover its short-term obligations. A company risks failing to cover its short-term obligations if the current ratio lies below 1.2. A ratio between 1.2 and 2 and above is typically considered safe.

In 2018, the company was relatively safe as the current ratio stood at 1.44, indicating ample current assets to cover short-term obligations. However, in 2019, the ratio dropped to 1.03, reflecting a decline in current assets to cover its liabilities. This also indicates the increase in current liabilities during the period. The current ratio improved to 1.57 in 2020, but decreased to 1.36 in 2021 and further to 1.08 in 2022, showing that the company managed to improve its operational efficiency.

Gross profit ratio

The gross profit ratio exhibited a fluctuating trend over the time from 2018 to 2022. In 2018 and 2019, the company posted gross profit ratios of 21.57% and 21.42%, respectively, indicating that the profit generated from sales declined marginally over the time without any change in the cost of production of the goods sold by the company. The company’s gross profit ratio stood at 30.99% in 2020. In 2021, the company experienced the highest gross profit ratio of 34.33%, which fell to 28.49% in 2022.

Net profit ratio 

The company’s net profit ratio demonstrated a fluctuating trend over the years. The company registered a net profit ratio of 13.94% in 2018, which fell to 9.97% in 2019. This decrease can be attributed to increased costs and price fluctuations. The net profit ratio regained its momentum and rose to 16.17% in 2020 and reached the highest level of 21.57% in 2021, reflecting increased sales and efficient cost management. In 2022, the net profit ratio plunged to 14.27%.

Operating profit ratio

The Engro Polymer & Chemicals Limited’s operating profit ratio varied over time. The highest operating profit ratio of 31.32% was achieved in 2021 because of a rise in net sales. The lowest operating profit ratio was recorded at 18.05% in 2019, caused by the impact of Covid-19-induced lockdowns. The operating profit ratios stood at 20% and 24.12%, respectively, in 2018 and 2022.

Credit: INP-WealthPk