Press Release

JCR-VIS Assigns Initial Entity Ratings to Engro Polymer and Chemicals Limited

Karachi, July 19, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘AA-/A-1+’ (Double A Minus/A-One Plus) to Engro Polymer and Chemicals Limited (EPCL). Outlook on the assigned ratings is ‘Stable’.

The assigned ratings incorporate strong market position in PVC (Polyvinyl Chloride) business, improved international dynamics of vinyl chain, cost leadership in caustic soda segment, financial and operational turnaround across key performance metrics, and robust corporate governance infrastructure. Ratings also take into account business risk of the sector given the cyclicality in business due to volatility in raw material prices. Strong financial profile and demonstrated track record of support from renowned conglomerate sponsor-Engro Corporation Limited is also a key rating driver.

EPCL is the only integrated Chlor-Vinyl Chemical Complex in Pakistan; it operates in two major segments i.e. PVC and Chlor-Alkali. In PVC, the Company has a market share of ~67% while market share in Caustic Soda business hovers around 30%. Given the growing demand of PVC and opportunity in chlor-alkali segment, EPCL has announced expansion plan of Rs. 10.3b comprising capacity expansion in PVC/VCM, value addition in its Chlor Alkali business and overall efficiency enhancement projects.

Assessment of business and industry risk profile incorporates healthy demand growth of PVC, which has increased at a CAGR of 11% over the last 5 years, and rationalization of international vinyl chain due to improving demand-supply situation around the globe, particularly in Asia. Nevertheless, cyclicality in business has historically remained high due to volatility in raw material prices translating into moderate to high business risk. However, the company has enhanced operational efficiencies through several interventions to minimize vulnerability of unfavorable vinyl chain dynamics. Going forward, ratings are dependent on international vinyl chain dynamics where JCR-VIS has been given to understand that limited international capacities of PVC are projected to come online relative to ethylene capacities which are expected to bode well for the Company.

Financial profile draws support from strong liquidity indicators as evident from healthy cash flows in relation to outstanding obligations and favorable working capital cycle. Capitalization indicators are adequate with gearing levels having declined significantly over the last 3 years. Given growing cash flows and projected dividend payout, healthy cash accumulation is expected over the rating horizon. Despite planned expansion, leverage indicators are projected to improve given the funding mix for expansion projects and healthy internal capital generation. Going forward, ratings will continue to remain dependent on maintaining financial indicators within benchmarks for the assigned ratings.

For further information on this rating announcement, please contact the undersigned (Ext: 208) at 021-35311861-71 or fax to 021-35311872-3.

Atiq Anwar Mahmudi

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited