Engro Polymer & Chemicals Ltd (EPCL) has slipped back into the red, capping an unforgiving year for Pakistan’s only fully-integrated PVC player. Weak pricing in its end-market, elevated energy and financing costs, and a slow-moving relief on feedstock economics combined to crush margins. Management says the “core delta” (the spread between PVC prices and ethylene-based inputs) has begun to improve late in the year, but it is also re-architecting power procurement for the next decade to stabilise production costs.
Net sales fell 7% to Rs75.7 billion (from Rs81.3 billion), while gross margin collapsed to 9% from 25% a year earlier. That swing dragged gross profit down 68% to Rs6.6 billion (from Rs20.6 billion) and turned a profit after tax of Rs8.9 billion in CY23 into a loss after tax of Rs0.2 billion in CY24. The dividend was skipped. The company’s own summary table attributes much of the pain to a 14% rise in cost of sales even as revenue fell, and to financial charges jumping 79% year-on-year.
There were glimmers of stabilisation by 3QCY25. Quarterly sales were broadly flat year-on-year, but gross margin improved to 11% from 5% in the same quarter last year, pushing operating profit sharply higher on a low base. Management credits cost efficiencies and an improvement in core delta for the sequential lift, even though PVC selling prices did not rise.
Power economics remained a thorn. The government’s off-grid captive levy – notified at Rs791 per MMBtu – arrived with a lag and only reached the full rate by 3QCY25, blunting any early-year benefit from lower fuel inputs and keeping unit costs elevated through most of CY24. Finance costs also stayed heavy given high interest rates, compounding pressure at the bottom line.
Looking ahead, management guided that core delta stood near USD 334 per tonne in September and has “seen more relief” in recent weeks, with the prospect of further improvement next year as more ethylene supply comes on line globally. Even so, it cautions that new PVC capacities elsewhere could briefly weigh on margins – a reminder that the supply cycle is still unsettled.
PVC economics live and die by spreads. In EPCL’s case, the sell-side price of PVC meets a cost base built around ethylene-derived precursors (EDC/VCM) plus chlor-alkali inputs and energy. Through CY24, PVC prices failed to lift, but the world was awash with ethylene, nudging the core delta in EPCL’s favour late in the year. Unfortunately, the relief arrived after the damage was done: the company spent most of CY24 selling into a soft market while swallowing higher costs for energy and debt service.
Two variables did most of the harm. Firstly, there was energy and reliability. The captive-power levy raised gas costs for off-grid users. EPCL says the levy’s full impact hit by 3QCY25, and it is now rethinking its power stack to secure >94% reliability for a 55MW base-load requirement. Options on the table include third-party gas, grid, coal, and solar, with a 10–15-year plan promised around the turn of CY25/26. In heavy-process chemistry, even small stutters in steam or power ripple through yield and maintenance costs; hence the emphasis on reliability alongside price.
Secondly, with policy rates elevated, financial charges rose 79% in CY24. While interest costs should ease as the cycle turns, they converted what might have been a breakeven year into a reported loss.
Competition, meanwhile, has been stiffer. Regional producers – especially in Asia – have been pushing tonnes into export markets as domestic construction wobbled, pressuring PVC realisations across import-parity economies. That dynamic shows up in EPCL’s 7% revenue decline despite a domestic footprint that typically gives it an edge in logistics and lead times.
End-markets are slowly normalising, but the mix is not yet ideal. Construction and infrastructure (pipes, profiles, cables and flooring) dominate Pakistan’s PVC consumption, and remodelling/new-build activity has been tepid amid high borrowing costs. Agricultural demand for irrigation and tube-well piping has helped, but not enough to offset urban construction softness. EPCL’s own commentary hints that the volume-price balance has yet to turn decisively in its favour; the core-delta tailwind must persist for several quarters for that to show through in earnings.
EPCL sits within the Engro ecosystem and operates Pakistan’s only integrated vinyls chain, making PVC resin and chlor-alkali products and converting imported feedstock into downstream precursors (EDC/VCM) before polymerisation. The company has expanded in phases over the past decade to lift local PVC sufficiency, paired with investments in utilities and reliability at its Port Qasim complex. In common with Engro’s other industrial arms, EPCL is run with an eye on long-cycle capital outlays and cash generation, which is why the power-cost reset now in evaluation is framed as a 10–15-year fix rather than a short patch.
For investors and customers alike, that integration matters. In a country without a domestic naphtha cracker, EPCL’s ability to convert imported ethylene into VCM and then PVC is the only near-term route to import substitution in vinyls. It also leaves the business exposed to global feedstock cycles and exchange-rate swings, which is precisely what CY24 laid bare.
EPCL’s flagship is suspension-grade PVC resin, sold into pipes & fittings, profiles, cable insulation, films and sheets. Alongside sit chlor-alkali outputs such as caustic soda and chlorine, with downstream derivatives (e.g., HCl, sodium hypochlorite) that monetise the chlorine stream. The vinyl chloride monomer (VCM) unit bridges ethylene to PVC, while the EDC step provides feedstock flexibility. The product slate and process choices are typical of a chlor-vinyls complex tuned for Pakistan’s demand mix.
The plant’s 55MW energy need and >94% reliability threshold drive a multi-source strategy. Management told investors it is evaluating a portfolio of power sources – grid, third-party gas, coal and solar – and expects to table a formal plan by end-CY25 or early-CY26. The explicit goal is to lock in cost certainty and flexibility to toggle between sources as tariffs and fuel availability change.
The CY24 P&L shows how sensitive the operation is to energy and feedstocks: cost of sales rose 14% even as sales slipped, crushing gross margin to 9%. The same table shows other income halving and financial charges ballooning, explaining the slide from Rs8.9 billion after-tax profit to a Rs0.2 billion loss. In 3QCY25, however, a core-delta uplift and process efficiencies lifted the gross margin to 11% – not yet healthy, but moving the right way.
Management pegs September’s core delta around USD 334 per tonne and sees “more relief” as global ethylene supply rises in 2026, while cautioning that fresh PVC capacities could temporarily soften realisations. In other words, the spread may improve on the cost side even if resin prices grind rather than leap – an outlook that argues for relentless cost control and power-procurement agility.
Pakistan’s petrochemicals system is import-dependent across most major polymers because the country lacks a naphtha cracker and associated C2/C3 value chains. Polyethylene and polypropylene are largely imported; PVC is the exception, where EPCL anchors domestic supply and trims the trade bill. That position, however, also concentrates sector risk: when global cycles turn against PVC or when local energy policy adds cost, there are few offsets elsewhere in the chain.
Three structural features frame the outlook. First, there is the feedstock exposure. With ethylene imported (directly or via EDC/VCM intermediates), the landed cost is sensitive to global balances and the rupee. The recent oversupply of ethylene has started to improve EPCL’s core delta, but the company is right to flag that new PVC capacity in Asia can pressure resin prices at the same time, tempering the benefit unless end-market demand also firms.
Second, there is energy policy and levies. The off-grid captive levy is a textbook example of how policy changes can swing industrial economics. Because the levy’s full effect only hit by 3QCY25, most of CY24 saw higher energy costs relative to the revenue environment. EPCL’s planned multi-source power approach is thus as much about policy hedging as it is about price.
Finally, there is end-market normalisation. PVC tracks construction and infrastructure. As financing eases and public-works budgets stabilise, the pipes-and-profiles demand engine should gradually re-engage. For now, EPCL’s 7% revenue decline and margin compression say recovery has yet to spill decisively into earnings, even if 3QCY25 hints at a trough.
EPCL’s label as Engro’s “problem child” has always been about volatility, not viability. The CY24 numbers were bruising: sales down 7%, gross margin sliced to 9%, finance costs up 79%, and a swing to a small loss after a bumper Rs8.9 billion profit the prior year. But the mechanics of improvement are already visible: a core-delta uplift from abundant ethylene, process efficiencies that showed up in 3QCY25, and a board-level push to re-engineer power for 10–15 years of cost and reliability certainty.
What must go right from here? Three things. First, the core delta needs to hold or widen as new ethylene supply lands, without a matching dump of new PVC depressing resin prices. Second, power costs must be bent lower via the multi-source plan – grid where it is cheapest and reliable, third-party gas when spreads favour it, solar to shave daytime load, and coal only if the economics withstand environmental scrutiny. Third, the domestic demand base – construction, utilities and agriculture – has to re-accelerate as rates ease, so that volume growth amplifies any margin repair.
Investors will also watch cash discipline. The no-dividend stance in CY24 was prudent; a return to payouts will depend on sustained margin repair, lower finance charges, and tangible progress on power procurement. If EPCL can stitch those threads together, the perennial problem child could yet grow into a steadier contributor to Engro’s portfolio – less hostage to fuel levies and global whipsaws, and more anchored by domestic import substitution in a market that needs it.
