PACRA Assigns Preliminary Rating to Engro Polymer & Chemicals Limited

October 10, 2018 (MLN): Pakistan Credit Rating Agency has assigned preliminary rating to Engro Polymer & Chemicals Limited at ‘AA’ for the Long Term, with a ‘Stable Outlook’ assigned to the firm.

According to the rating agency, the ratings reflect EPCL's association with one of the country's leading conglomerate – Engro Corp, as well as its established foothold in the local PVC and caustic soda market as it is the only manufacturer of Poly Vinyl Chloride (PVC), having a market share of 67% in domestic market.

The report suggests that the growth in economy and increase in construction activities led to increase in company's revenues and further improvement in profitability.

‘Keeping in view growth trajectory, EPCL announced a CAPEX of PKR 10.3bln, an addition of 100K tons capacity on PVC and 50K tons of VCM, on a tune of PKR 7.6bln of which PKR 5.4bln has been raised through the issuance of right shares. Remaining CAPEX will be funded through internally generated cash and debt,’ it added.

According to the press release, EPCL further plans to invest $23 million through internal cash flow for installing Hydrogen Peroxide Plant. During expansion, the strength of the balance sheet is likely to remain intact.

EPCL plans to utilize proceeds of this sukuk to reprofile its existing debt which will further strengthen its financial profile. The company intends to maintain a Debt Service Reserve Account during tenor of the Sukuk.

The report further said that the rating is also dependent upon holding sustained operations and continuity of improved margins. Successful execution of planned expansion, while, with the new debt to be acquired, maintenance of coverages would remain important to uphold ratings.

Sustenance of import and anti-dumping duty is important for the sustainability of the risk profile of the company. Timely build up of Debt Service Reserve Account for payment of financial obligations will remain critical, it added.

EPCL, established in 1997, started commercial production in 1999. The Company is listed on Pakistan Stock Exchange. EPCL is primarily involved in the manufacturing, marketing and distribution of PVC and its allied products with design annual capacity of 195,000 tons per annum (tpa). Caustic Soda – another product - adds meaningful diversification to the company’s business. EPCL markets the PVC products with the brand name of ‘SABZ'.

EPCL is a subsidiary of Engro Corporation Limited (ECL) having majority stake of 56%. The other major shareholders of EPCL are Mitsubishi Corporation (11%), and others (~33%).

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