EPCL retains 'AA' long-term rating from PACRA

July 09, 2026 (MLN): Engro Polymer and Chemicals Limited (PSX:EPCL) has had its entity ratings maintained by PACRA at "AA" for the long term and "A1+" for the short term, with a stable outlook.

 The ratings remain unchanged from the previous review conducted on July 7, 2025.

The rating agency said EPCL continues to hold its position as Pakistan's only domestic manufacturer of Poly Vinyl Chloride (PVC) resin, alongside a diversified Chlor-Alkali product line comprising Caustic Soda, Sodium Hypochlorite, and Hydrochloric Acid.

 This standing, backed by tariff protection on PVC imports, was cited as a key support for the Company's business risk profile, though competitive pressure from import-parity pricing was flagged as a constraint on pricing flexibility.

During CY25, the Company strengthened its long-term business profile by commissioning a Hydrogen Peroxide plant through its wholly owned subsidiary, Engro Peroxide (Private) Limited, along with the High-Temperature Direct Chlorination (HTDC) project.

Both initiatives entered CY26 with improved operational stability and are expected to contribute more meaningfully as utilization levels rise.

PACRA noted that the industry faced sustained pressure through CY25 amid a global oversupply in both PVC and ethylene markets, which kept the PVC–ethylene spread  the primary driver of EPCL's profitability  subdued for most of the year.

A continued rise in the domestic captive gas levy also pushed up production costs, though a reduction in the levy from March 2026 is expected to offer partial relief.

These industry-wide challenges left the Company's profitability under strain, resulting in a second consecutive year of pre-tax losses despite record domestic PVC sales volumes of 239KT.

However, the first quarter of CY26 showed early signs of recovery, supported by higher sales volumes and improved profitability margins.

Looking ahead, the continued ramp-up of the Hydrogen Peroxide and HTDC projects, together with power optimization initiatives, is expected to improve operating efficiencies, diversify earnings streams, and support a recovery in profitability.

The rating agency further observed that EPCL's debt levels rose during CY25 in line with its diversification and efficiency initiatives, though the capital structure remains predominantly backed by long-term borrowings with limited reliance on short-term debt.

While gross leverage stays elevated, sizeable cash reserves held as short-term investments were said to provide an adequate liquidity cushion.

The ratings also draw support from EPCL's association with Engro Corporation, one of Pakistan's leading conglomerates, whose strong financial profile and demonstrated sponsor support add further comfort to the Company's credit profile.

PACRA said the ratings remain contingent on the sustainability of profitability and margin recovery, the extent to which this translates into stronger cash flow generation and coverage metrics, and continued adherence to agreed financial discipline and prudent debt management.

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