Yet another jewel in Nishat Groups crown is all set to be listed on local bourses. The group is offering the general public with an opportunity to subscribe to 9.49 million shares in Lalpir Power Limited; total shares on the offer are 37.9 million.
The offering has enjoyed good press so far, and the Chundrigar consensus suggests that Lalpirs strike price would be over and above the floor price of Rs15/share.
Lalpir Power is backed by sponsors as strong as one could imagine in Pakistan. Nishat Group already owns and operates three other notable power projects namely Nishat Power, Nishat Chunian Power and Pak Gen Power Limited.
The 350-MW power plant located near Muzaffargarh runs on furnace oil for which it has a fuel supply agreement with the PSO, whereas the Power Purchase Agreement (PPA) lasts for 30 years.
The plant has had fuel losses to the tune of 5.2 percent from the benchmark efficiency in the previous two years. To address the issue, Lalpir Power has undertaken a BMR project to minimise fuel losses and increase efficiency. The BMR is likely to be completed in FY14, for which a capital expenditure of Rs3 billion has been estimated over next two years.
From the market price perspective, the offer document mentions a very attractive P/E ratio of 3.94 in comparison to the industry average of 4.78. That said it would be more appropriate if the P/E ratio is compared with the similar firms i.e. excluding the likes of Hubco and Kapco that are far bigger in size and trade at relatively higher multiples owing to very healthy dividend yields.
The average P/E ratio of similar sized power plants, owned by Nishat Group comes at 3.9, in line with that of Lalpir Power. Lalpirs historical payout ratio has been on the higher side, making a case for attractive dividend yields on offer. But what could be a likely cause of concern for future payout is the financing of BMR project, as part of Rs3 billion will be financed from internal cash flow.
Lalpir Power enjoys considerable cover for various risks as under the PPA, Wapda is liable to pay the capacity payments to cover the fixed operating costs, financing costs and equity return - irrespective of the actual power dispatched.
Likewise, circular debt is not much a problem for IPPs and Lalpir is no exception, as it produces electricity to the extent Wapda for it - in case of non-operation of the plant, Wapda pays the capacity charges.
With the new government having taken charge, it is expected that a policy on converting RFO based power plants to coal would be announced soon. In case it happens, Lalpir would not take a back seat to pounce on the opportunity to improve its profits and efficiency.
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LALPIR POWER LIMITED - Key financials
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(Rs mn) FY08 FY09 FY10 FY11 FY12
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Revenue 20,880 19,390 17,968 26,970 32,907
Gross profit 2,556 2,364 1,624 2,386 2,491
PAT 1,152 1,829 1,508 1,432 1,446
Assets 15,710 15,826 17,492 19,512 22,834
Equity 9,594 11,050 12,262 11,967 12,205
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Source: Offer for sale document
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LALPIR POWER LIMITED - Key ratios
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FY08 FY09 FY10 FY11 FY12
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EPS (Rs) 3.34 5.3 4.37 4.15 4.19
BPS (Rs) 27.78 32 35.51 34.66 35.34
ROE 12% 17% 12% 12% 12%
ROA 7% 12% 9% 7% 6%
DPS (Rs) 8.55 1.09 0.75 6.5 3.1
Payout ratio 256% 21% 17% 157% 74%
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Source: Offer for sale document
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