Engro Polymers first half CY09 net profits plunged by 98 percent as higher depreciation charges squeezed its gross margins while soaring financial costs also lopped its bottom-line earnings.
The firm said it earned a profit after tax of Rs7.05 million in 1HCY09 - translating into earning per share of Re 0.01 - down from Rs 427 million in the same period last year. EPCL did not announce any interim dividend.
Its net revenues rose 13 percent over corresponding period last year, driven mainly by higher sales volumes as international PVC prices decreased by nearly 27 percent during the period. But with higher input cost, their PVC-VCM margins remained lower at around $145-150 per ton, compared to $250- 300 in 1HCY08.
Consequently, the companys cost of goods sold for the period jumped 31 percent to Rs4,530 million from the year ago period - squeezing gross margins further to 8 percent from 21 percent in 1HYCY08. In addition higher gas prices also played a part in spoiling EPCLs margins as it increased to Rs340 per MMBTU from Rs248 per MMBTU.
Another main reason behind this decline is higher depreciation charged during the period which the company was unable to recover due to plant underutilization, after it increased its capacity by 50,000 tons per annum in 1HCY09. Capacity underutilization is mainly attributed to declining demand both in international and domestic market, owing to slowdown in construction activity and weak economic outlook.
Adding to the burden was financial cost which surged 7 times due to higher financial charges on loan taken for its new PVC plant.
Despite gloomy results EPCL seems to have a brighter future ahead. The companys backward integration plant - which will produce PVCs key raw material, chlorine - is expected to commence its operations by the end of CY09.
While this will lower EPCLs cost of production it will also allow it to earn attractive revenues by selling 105,000 tons of caustic soda - a by-product of chlorine - which would cater up to 40 percent of total caustic demand in the countrys southern region.
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EPCL P&L
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Rs (mn) 2QCY09 2QCY08 (+/-)% 1HCY09 1HCY08 (+/-)%
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Sales 2,566 2,473 4% 4,945 4,369 13%
COGS 2,235 1,924 16% 4,530 3,457 31%
Gross profit 331 549 -40% 415 912 -54%
Gross Margin 13% 22% -42% 8% 21% -60%
Other Income 41 26 61% 55 88 -38%
Operating profit 180 345 -48% 123 649 -81%
Finance cost 61 8 682% 119 16 665%
PBT 119 338 -65% 4 633 -99%
Taxation 37 100 -63% 3 206 -98%
PAT 82 238 -65% 7 427 -98%
EPS(Rs) 0.16 0.46 -65% 0.01 0.83 -99%
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Source: Company Results
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