EPCL likely to post Rs4.9 per share earnings

Engro Polymer & Chemicals (EPCL) is likely to Post Earnings per share (EPS) of Rs4.9 compared to Re0.01 last year in 2QCY21

Sherman Research hopes that EPCL share Earnings may be at Rs 4.9 on the back of higher international margins.

Both LOTCHEM and EPCL profits are likely to increase significantly on the back of higher international margins significant improvement in volumes, and GIDC suspension.

We present an earnings preview of our sample chemical companies for 2QCY21, Sherman Research said in a report.

Engro Polymer & Chemicals (EPCL) and Lotte Chemical (LOTCHEM) boards are yet to announce their meetings. We expect both companies to show exponential bottom line growth against 2QCY20 on the back of higher international margins, significant improvement in volumes, and GIDC suspension.

EPCL share earnings likely at Rs4.9

EPCL – our top pick in the chemical sector – is likely to post EPS of Rs4.9 compared to Re0.01 last year.

Exponential share earnings growth is likely due to higher international primary margins (PVC-Ethylene), better volumes, and GIDC suspension.

We expect EPCL’s net revenue to grow 1.8x YoY to Rs16.6bn during 2QCY21 on higher international PVC prices (up 108%YoY) and better volumetric sales (up 55%YoY), reveals research report.

The average international primary margin (PVC-Ethylene) during 2QCY21 is likely to remain on the higher side by 1.2x to US$994ton versus US$448 in 2QCY20.

Besides higher international primary margin, improved volumetric sales and absence of GIDC are likely to further support overall gross margin – expected to rise by 32ppts YoY to 43% during the quarter under review.

Despite being on a declining trend from record-high levels witnessed in late March, we expect international margins to remain above historical levels in the near term.

Additionally, with the help of recently-augmented VCM capacity by 50KT and 100KT PVC capacity added in the previous quarter, EPCL is to further strengthen its market share price. Hence, higher volumes in the coming quarters are likely to minimize the impact of normalization in international margins.

LOTCHEM: 2Q EPS likely at Rs0.8

LOTCHEM is likely to post earnings per share (EPS) of Rs0.8 in 2QCY21 compared to Re0.04 last year. The company’s profitability may elevate on the back of higher volumes, improved international primary margin (PTA-PX), and GIDC suspension.

The company’s net revenue may grow by 2.3x YoY to Rs14.7bn on significant improvement in volumes (up to 1.4x YoY) and higher international PTA prices (up 64%YoY).

We expect the average PTA-PX margin during 2QCY21 to remain on the higher side (25%YoY to US$133/ton vs, it said in a report. US$106 in 2QCY20).

Hence, higher volumes, improved international margins, and GIDC suspension are likely to lift gross margin by 14ppts YoY to 12% during 2QCY21 vs -2% in 2QCY20.

We expect other income to grow by 10%YoY to Rs0.3bn during the quarter owing to higher cash reserves. On the flip side, we expect LOTCHEM to book an exchange loss of Rs0.1bn on dollar-based lease liabilities due to recent US dollar appreciation against the greenback.