Lahore: The Pakistan Credit Rating Agency Limited (PACRA) has maintained the entity ratings of Engro Polymer and Chemicals Limited (EPCL). This decision comes in light of the company's strategic initiatives and challenges faced by the global PVC industry, which saw prices revert to pre-COVID levels due to subdued demand in key markets and geopolitical tensions.
According to Pakistan Credit Rating Agency Limited, EPCL has undertaken significant capacity expansions and efficiency enhancement projects, such as the High-Temperature Direct Chlorination (HTDC) process and the digitization of EDC and VCM plants, completed in CY24 and 1QCY25, respectively. Despite these efforts, the global PVC industry faced a downturn in CY24, driven by economic recovery issues and oversupply situations. Domestically, high inflation and interest rates further dampened demand, impacting construction activities and consumer spending. However, signs of macroeconomic improvement emerged in CY25, with relative stability in the foreign exchange market and a gradual decrease in inflation and interest rates.
EPCL's market dominance remained strong, holding a 90% market share, although its topline faced a reduction of approximately 7% in CY24 due to decreased PVC prices. To counter macroeconomic pressures, EPCL is focusing on expanding PVC export volumes and promoting demand for downstream PVC applications through its subsidiary, Think PVC (Pvt.) Limited. Additionally, the successful commissioning of a Hydrogen Peroxide plant in 1QCY25 marks a strategic milestone for the company, expected to enhance its product portfolio and earnings.
In CY24, EPCL's debt levels rose in line with its diversification and efficiency initiatives, but the debt profile is managed prudently with a mix of concessionary and conventional borrowings. The recent policy rate reduction to 11% is anticipated to ease debt servicing costs. Despite an elongation in the working capital cycle and moderated coverage ratios, EPCL benefits from its association with Engro Corporation, a leading conglomerate in Pakistan, providing additional support to its ratings.
The ratings' stability is contingent upon EPCL's ability to maintain its market leadership, strengthen export sales volumes, and ensure adequate margins and profitability. Adherence to financial discipline and effective capital structure management remain critical for sustaining its ratings.