Engro Polymer and Chemicals Limited (EPCL), a leading chemical manufacturer in Pakistan, has reported a significant financial downturn for the third quarter of 2024. The company booked a net loss of Rs487.65 million [LPS: Rs0.54] for the quarter ending September 30, 2024, compared to a profit of Rs2.64 billion [EPS: Rs2.74] in the same period last year, according to the company’s financial report submitted to the Pakistan Stock Exchange (PSX).
Top Line Decline and Rising Costs
EPCL’s revenues took a major hit in Q3 2024, with the top line dropping 19.8% year-on-year (YoY) to Rs20.06 billion, down from Rs25.01 billion in the corresponding quarter of 2023. The declining sales were compounded by rising costs of production, which increased by 2.3% to Rs18.97 billion. As a result, the company’s gross profit plunged by 83.1%, falling to Rs1.1 billion from Rs6.47 billion in Q3 2023.
The gross margins also significantly worsened, dropping to just 5.5% in Q3 2024 from 25.9% in the same period last year. This sharp contraction in profitability is indicative of EPCL’s struggle with cost pressures, declining demand, and a challenging macroeconomic environment.
Expense Surge Adds to Woes
EPCL faced a considerable increase in expenses during the quarter, further weighing on the company’s financial performance. Administrative expenses more than doubled, rising 120% YoY to Rs512.41 million from Rs232.87 million in Q3 2023. Distribution and marketing costs also increased by 19.5% YoY, reaching Rs159.49 million.
On the positive side, the company saw some relief in other operating expenses, which decreased by a substantial 89.1% YoY, falling to Rs87.8 million from Rs803.35 million in the same period last year. However, the gains from this reduction were not enough to offset the other surging costs.
Finance Costs and Other Income
EPCL’s finance costs surged by 58.7% YoY to Rs1.96 billion in Q3 2024, up from Rs1.24 billion in Q3 2023. This increase was primarily due to rising interest rates, which have put pressure on the company’s borrowing costs and further strained profitability.
Meanwhile, other income grew modestly, rising 4.8% YoY to Rs391.87 million from Rs373.77 million in the same period last year. While this uptick is positive, it was insufficient to counterbalance the significant costs the company incurred.
Tax Credit Provides Some Relief
EPCL benefited from a tax credit of Rs746.79 million in Q3 2024, compared to a tax expense of Rs1.8 billion in the corresponding period last year. This tax credit provided some relief to the company’s bottom line, mitigating the impact of the heavy losses it sustained during the quarter.
Financial Summary for Q3 2024
- Revenue: Rs20.06 billion (down 19.8% YoY)
- Cost of Sales: Rs18.97 billion (up 2.3% YoY)
- Gross Profit: Rs1.1 billion (down 83.1% YoY)
- Administrative Expenses: Rs512.41 million (up 120% YoY)
- Distribution & Marketing Costs: Rs159.49 million (up 19.5% YoY)
- Other Income: Rs391.87 million (up 4.8% YoY)
- Finance Cost: Rs1.96 billion (up 58.7% YoY)
- Net Loss: Rs487.65 million (down from Rs2.64 billion profit in Q3 2023)
- Basic Loss per Share (LPS): Rs0.54 (down from Rs2.74 EPS in Q3 2023)
Future Outlook
EPCL’s financial results for Q3 2024 underscore the tough operating conditions the company is facing. The combination of falling demand, rising costs, and increased borrowing expenses has significantly impacted the company’s profitability. While the tax credit provided some relief, the company will need to focus on stabilizing its revenue streams and managing costs more effectively to reverse its fortunes.
Going forward, EPCL will need to navigate a challenging economic landscape, including fluctuating raw material costs and rising interest rates, to improve its financial performance. The company’s ability to manage these headwinds will be crucial in restoring profitability in the coming quarters.
