Engro Polymer, perennial problem child, swings to losses again

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.