PACRA Maintains the Entity Ratings of Engro Polymer & Chemicals Limited

Engro Polymer and Chemicals Limited (“EPCL” or “the Company”) holds a prominent position in Pakistan’s chemical industry, being the sole domestic manufacturer of Poly Vinyl Chloride (PVC) resin. The Company also has a strong presence in the production of Chlor-Alkali products, including Caustic Soda, Sodium Hypochlorite, and Hydrochloric Acid. Over the years, EPCL has successfully executed a series of capacity expansions and efficiency enhancement projects, strengthening its operational capabilities. Notably, key initiatives such as the High-Temperature Direct Chlorination (HTDC) process and the digitization of EDC and VCM plants were completed and commissioned in CY24 and 1QCY25, respectively. Globally, the PVC industry faced considerable challenges during CY24, with prices reverting to pre-COVID levels. This downturn was driven by muted demand in major markets such as North America and China, coupled with geopolitical tensions, persistent inflation, and sluggish economic recovery, which culminated in a global oversupply situation. On the input side, Ethylene prices remained volatile due to OPEC+ production decisions, exerting downward pressure on the core delta and consequently compressing margins, which ultimately evaporated the profitability, and the trend is expected to continue in CY25. Domestically, demand was dampened in CY24 amid elevated inflation and high interest rates, which curtailed construction activities and consumer spending. However, macroeconomic conditions began to show signs of improvement in CY25, with relative stability in the foreign exchange market, a gradual decline in inflation and interest rates, and improving consumer confidence—factors that are fostering a recovery in the real estate and construction sectors. EPCL demonstrated resilience by maintaining its dominant market share of 90% however, topline faced a reduction of ~7% in CY24 due to a decrease in PVC prices. To mitigate macroeconomic pressures and diversify revenue streams, management is focusing on expanding PVC export volumes and driving demand for downstream PVC applications through its wholly owned subsidiary, Think PVC (Pvt.) Limited. On the diversification front, the successful completion and commissioning of the Hydrogen Peroxide plant in 1QCY25 mark a strategic milestone, expected to further broaden the Company’s product portfolio and strengthen its earnings base. In CY24, EPCL’s debt levels increased in line with its ongoing diversification and efficiency initiatives. However, the debt profile remains prudently managed through a balanced mix of concessionary financing (TERF and LTFF) and conventional borrowings. The recent reduction in the policy rate to 11% is expected to ease debt servicing costs, particularly given the predominance of long-term borrowings in the Company’s capital structure. Nonetheless, an elongation in the working capital cycle and a moderation in coverage ratios were observed during the year. EPCL’s ratings continue to draw support from its association with Engro Corporation, which is one of Pakistan’s leading conglomerates, and the sponsors’ robust financial profile, which provides additional comfort to the ratings.
The ratings are dependent upon the company’s ability to sustain its position as a market leader, further strengthen its sales volumes through exports, and maintain sufficient margins and future profitability. Further, adherence to the agreed financial discipline remains crucial. Adequate management of its capital structure and debt payback remains imperative.

About the Entity
EPCL, established in 1997, started commercial production in 1999. The Company is listed on the PSX. EPCL is primarily involved in the manufacturing, marketing, and distribution of PVC and its allied products. EPCL is a subsidiary of Engro Corporation Limited (ECL) having a majority stake (56%). The other major shareholder is Mitsubishi Corporation (11%). The Board comprises of 8 members including the CEO - Executive Director, one member represents Mitsubishi Corporation, three are independent directors and the remaining are Non-Executive Directors.