Engro Polymer & Chemicals Limited

CREDIT RATING REPORT | Jul-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
07-Jul-25 AA A1+ Stable Maintain -
12-Jul-24 AA A1+ Stable Maintain -
14-Jul-23 AA A1+ Stable Maintain -
16-Jul-22 AA A1+ Stable Upgrade -
17-Jul-21 AA- A1+ Positive Maintain -
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.

Rating Rationale

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.

Key Rating Drivers

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.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Engro Polymer & Chemicals Limited

rating analysis

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Profile
Legal Structure

Engro Polymer and Chemicals Limited (‘EPCL’ or ‘The Company’), was established in 1997 and is listed on Pakistan Stock Exchange.


Background

Engro Polymer and Chemicals Limited, formerly known as Engro Asahi Polymer and Chemicals Limited is the only Poly Vinyl Chloride (PVC) manufacturer in Pakistan. The Company is a subsidiary of Engro Corporation Limited (the Holding Company) which is a subsidiary of Dawood Hercules Corporation Limited (the Ultimate Parent Company). The Company’s principal activity is to manufacture, market and sell Poly Vinyl Chloride (PVC), Vinyl Chloride Monomer (VCM), Caustic soda and other related chemicals. The Company's production facility is located at Port Qasim, Karachi.


Operations

The Company is primarily involved in the manufacturing, marketing, and distribution of PVC with an annual capacity of 295KT. The Company also produces Caustic Soda Liquid with annual capacity of  106KT and its allied products. Recently, in first quarter 2025, EPCL commisioned its Hydrogen Per Oxide project with an annual capacity of  28KT. The Company meets its electricity requirement through a captive generation capacity of ~60MW.


Ownership
Ownership Structure

Engro Polymer and Chemicals Limited is a subsidiary of Engro Corporation Limited which is ultimately owned by DH Group. Engro Corporation holds a majority stake in the company (~56%). The other major shareholder is Mitsubishi Corporation (~11%).


Stability

The Company' is a subsidiary of Engro Coerporation which is one of the largest conglomerate in Pakistan. The ownership structure of the Company displays a composite outlook, with a defined shareholding pattern of all parties.


Business Acumen

Dawood Group is a conglomerate with over three generations of experience in commercial and social enterprises. Currently, the Group has interests in various sectors of the economy including Fertilizers, Foods, Power Generation, Technology, Financial Services, Chemical Storage, and Petrochemicals.


Financial Strength

Dawood Group’s main holding company is DH Corp. The Group’s main investments in Engro Corp are consolidated in DH Corp. DH Corp had a strong equity base of ~ PKR 30,837mln as of Sep'2024, signifying a robust strength.


Governance
Board Structure

The Board of Directors (BoD) comprises 8 members including the CEO - the only Executive Director, one member represents Mitsubishi Corporation, three are Independent Directors and the remaining are Non-Executive Directors. Mr. Ahsan Zafar Syed (the CEO of Engro Corp) - Chairman of EPCL possesses over 3 decades of professional experience.


Members’ Profile

Members of the board have a good mix of skills and experience. Mr. Ahsan Zafar Syed – the CEO of Engro Corp, is the Chairman of Engro Polymer & Chemicals Limited. WIth his diversed experience across different industries including fertilizer, petro chemicals, food and energy, he helps set a cohesive direction to create growth and value for the group of companies by focusing on long-term strategy and digital transformation. All the members on board possess an extensive industrial experience, providing their professional oversight towards EPCL.


Board Effectiveness

The board has two committees in place; (i) Board Audit Committee and (ii) Board People’s Committee. Board Committees are chaired by independent directors to ensure transparent governance function.


Financial Transparency

A.F.Ferguson & Co. Chartered Accountants are the auditors of the Company. The said firm falls is listed in category ‘A’ of SBP’s panel of auditors. They expressed an unqualified opinion on the Company’s financial statements for the year ended CY24.


Management
Organizational Structure

The Company operates through eight departments, each headed by an experienced manager. These departments include (i) Internal Audit (ii) Manufacturing (iii) Commercial (iv) Supply Chain (v) Finance, (vi) Human Resources, (vii) Business Development, and (viii) Digital Transformation. Each department head directly reports to the CEO.


Management Team

A well-qualified and experienced management team is there to run the business operations efficiently. The newly appointed CEO, Mr. Abdul Qayoom, has a degree in chemical engineering with diverse corporate experience spanning over two decades. Mr. Abdul Qayoom Shaikh, CEO, is a seasoned chemical industry professional with over 20 years of experience across technical, commercial, and business development roles, including leadership positions at Engro. He has led large-scale petrochemical initiatives and serves on the boards of multiple Engro Group companies.Rabia Wafah Khan, CFO of Engro Polymer & Chemicals, brings over 20 years of cross-functional experience in finance, business development, and HR across the chemicals, fertilizers, and energy sectors. A CFA Charterholder with degrees from IBA and Golden Gate University, she has led strategic initiatives in cost management, digitization, and long-term planning for the Company.


Effectiveness

The strong organizational structure ensures effective delegation of functional responsibility across various departments, facilitating a smooth flow of operations. There is a management committee headed by the CEO to oversee and resolve all operational and managerial issues.


MIS

EPCL has successfully transitioned from SAP ECC 6.0 to S4/HANA. This would help the Company in managing complex processes and larger data sets through the system as compared to the previous version. EPCL’s Digital Strategy is based on projects that will automate most of the processes and bring AI, Computer Vision, and Data Analytics into use to improve the safety, reliability, and efficiency of the processes.


Control Environment

The control environment is strengthened by the role of the Internal Audit department which provides detailed periodic reports to the Audit Committee for review and assessment and to take necessary remedial actions, where needed.


Business Risk
Industry Dynamics

Pakistan has gigantic potential for the growth of the chemical sector as it is an integral part of our daily lives and industrial progress. Over the years, the local market has made considerable progress in basic inorganic chemicals like Polyvinyl Chloride, Caustic soda, Soda Ash, and Hydrogen peroxide and has expanded its production capacities to cater to the market demand. The PVC industry in Pakistan is gradually diversifying, and the range of finished products is expanding to include PVC flooring, garden furniture, roofing, wall panels, and ceilings. The outlook for demand growth in the region is positive, driven by increasing per capita consumption, construction activities, and the introduction of new applications. It is estimated that PVC demand in Pakistan will grow by 4.5% between 2024 and 2032. As the PVC market continues to evolve and mature, it provides opportunities for further diversification and growth. Recently, from June'2024 to March'2025, the international PVC prices have been facing a downward trend, and dropped from 948$/MT to 710$/MT. However, ethylene which is a core raw material for PVC production remained range bound between $910/ton and $940/ton, thus evaporating the industry margins. Furthermore, the global demand for PVC remained subdued 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.


Relative Position

The majority of domestic PVC demand is met through Engro Polymer and Chemicals. It is the only producer of PVC in Pakistan. The plant has an annual production capacity of ~295,000MT. As of CY 24, the Company possess 84% of local market share and remaining catered through imports.


Revenues

In CY24, EPCL’s revenue declined by ~6.8%, reaching PKR 75,678 million (CY23: PKR 81,224 million). The decline followed a near-flat performance in CY23 and reflects persistent weakness in local demand, lower international PVC prices, and challenging macroeconomic conditions.


Margins

EPCL’s gross margin dropped to 8.7% in CY24 (CY23: 25.3%), while operating margin declined to 5.1% (CY23: 22.5%), and net profit margin reduced sharply to 0.8% (CY23: 11.4%).
This substantial erosion in profitability is primarily due to the reduction in core delta, which fell to $337/MT in Dec’24, and further to $240/MT by Mar’25. The Company anticipates core delta levels to remain subdued throughout CY25, maintaining pressure on margins.


Sustainability

The Company has successfully commissioned its Hydrogen Peroxide project in February 2025, with an initial production capacity of 28,000 MT per annum. It has also completed the High-Temperature Direct Chlorination project, aimed at enhancing process efficiency. Furthermore, the Company has completed the debottlenecking of its VCM production facility, increasing its capacity to 245 KT per annum,


Financial Risk
Working capital

In CY24, EPCL’s inventory days increased to 72 days (CY23: 62 days), while trade receivables improved to 7 days (CY23: 10 days). Gross working capital cycle rose to 79 days (CY23: 71 days), while trade payables increased to 27 days (CY23: 15 days), resulting in net working capital days improving to 52 days (CY23: 56 days). The slight improvement reflects better payable management despite higher inventory buildup.


Coverages

Free Cash Flow from Operations (FCFO) dropped significantly to PKR 1,649 million in CY24 (CY23: PKR 14,430 million), due to lower EBITDA and higher finance costs. Interest coverage declined to 1.1x (CY23: 4.9x), while the debt coverage ratio weakened to 0.3x (CY23: 1.7x), indicating constrained debt-servicing ability amid margin pressures.


Capitalization

EPCL’s total borrowings increased to PKR 42,245 million in CY24 (CY23: PKR 34,187 million), leading to a higher leverage ratio of ~59.8% (CY23: ~54.2%). Long-term debt remained the dominant component (~67%), with the Company also continuing to avail SBP concessionary finance to partially offset rising borrowing costs.
 
 

Jul-25

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Engro Polymer & Chemicals Limited

financial summary

(PKR mln)

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Dec-24
12M		 Dec-23
12M		 Dec-22
12M
A. BALANCE SHEET
1. Non-Current Assets 50,655 46,593 43,308
2. Investments 1,445 3,345 15,377
3. Related Party Exposure 13,296 8,555 3,912
4. Current Assets 33,675 29,630 21,361
a. Inventories 13,421 16,621 10,416
b. Trade Receivables 1,248 1,612 2,676
5. Total Assets 99,071 88,123 83,958
6. Current Liabilities 26,558 21,985 25,444
a. Trade Payables 8,442 2,887 3,790
7. Borrowings 42,245 34,187 28,587
8. Related Party Exposure 0 0 0
9. Non-Current Liabilities 1,866 3,048 2,793
10. Net Assets 28,403 28,902 27,134
11. Shareholders' Equity 28,403 28,902 27,134
B. INCOME STATEMENT
1. Sales 75,678 81,224 82,060
a. Cost of Good Sold (69,108) (60,677) (58,354)
2. Gross Profit 6,570 20,548 23,706
a. Operating Expenses (2,719) (2,247) (1,898)
3. Operating Profit 3,851 18,301 21,808
a. Non Operating Income or (Expense) 1,347 (231) (2,011)
4. Profit or (Loss) before Interest and Tax 5,198 18,071 19,797
a. Total Finance Cost (7,523) (4,197) (3,083)
b. Taxation 2,935 (4,643) (5,004)
6. Net Income Or (Loss) 610 9,231 11,710
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 1,649 14,430 19,870
b. Net Cash from Operating Activities before Working Capital Changes (5,566) 9,898 17,559
c. Changes in Working Capital 6,762 (7,876) 1,682
1. Net Cash provided by Operating Activities 1,196 2,023 19,241
2. Net Cash (Used in) or Available From Investing Activities (8,538) 3,006 (7,883)
3. Net Cash (Used in) or Available From Financing Activities 10,122 (11,288) (14,039)
4. Net Cash generated or (Used) during the period 2,780 (6,259) (2,680)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -6.8% -1.0% 17.2%
b. Gross Profit Margin 8.7% 25.3% 28.9%
c. Net Profit Margin 0.8% 11.4% 14.3%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 11.1% 8.1% 26.3%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 2.1% 32.9% 41.0%
2. Working Capital Management
a. Gross Working Capital (Average Days) 79 71 59
b. Net Working Capital (Average Days) 52 56 41
c. Current Ratio (Current Assets / Current Liabilities) 1.3 1.3 0.8
3. Coverages
a. EBITDA / Finance Cost 1.1 4.9 10.0
b. FCFO / Finance Cost+CMLTB+Excess STB 0.1 1.7 2.2
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) -7.1 2.6 1.6
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 59.8% 54.2% 51.3%
b. Interest or Markup Payable (Days) 35.4 38.3 58.3
c. Entity Average Borrowing Rate 16.9% 15.3% 11.0%

Jul-25

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Engro Polymer & Chemicals Limited

rating scale

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Jul-25

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Engro Polymer & Chemicals Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
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