K-Electric Limited

It seems that the name change has further improved the company's fortunes; Karachi Electric Supply Corporation changed its name to K-Electric Limited, effective January 16, 2014. The firm was incorporated in 1913 and is a fully integrated power utility that is involved in generation, transmission and distribution of electricity to the largest metropolis of the country, Karachi.
K-Electric Limited provides electricity to millions of customers in Karachi and also in Dhabeji and Gharo in Sindh and Hub, Uthal, Vindhar and Bela in Balochistan. It covers an area of 6,500 square kilometers, supplying electricity to all sectors including residential, industrial, commercial and agricultural. At present, the company has 2,341 megawatt of installed capacity, which includes 420 megawatt dedicated for coal conversion.
OPERATIONAL PERFORMANCE All criticism aside, the privatisation of K-Electric has been a success story for the electricity distribution sector that hinges upon improving efficiency and operational performance through the restructuring of the existing and new generation, transmission and distribution network. Since then, there has been significant financial and operational improvement in the company. Its own generation accounts for 64 percent of the total, while 34 percent lies with power purchases from IPPs and NTDC.
The firm has upgraded to 62 grid stations, 128 power transformers and transmission network of 220, 132, and 66 kV circuits and 1,249km of overhead and underground cable. It has been able to reduce its transmission and distribution losses drastically from around 36 percent to 25.1 percent in 9M FY14.
According to K-Electric's 9M FY14 report, major initiatives were planned and executed in the financial year FY14 to achieve improved reliability of generating units. These included closing of cycle at Korangi Combined Cycle Power Plant (KCCPP). As per the quarterly report for 9M FY14, the completion of the project will result in increase in efficiency to 45.5 percent from 42 percent and the installed capacity to increase by approximately 27MW. Progress has been satisfactory as major civil works are completed and installation of machinery and equipment is in progress.
The firm is also involved in two waste-to-heat recovery projects, which will result in enhancement in the capacity by 9.56MW at each of the waste-to-heat recovery stations; efficiency of the stations will increase from 37 percent to 42 percent. On the transmission side, capacity enhancement of nine power transformers, and SITE and Korangi expansion projects remained key achievements during the said period. Moreover, the company report highlights the transmission package has been finalised and project development and financing arrangement for 1st phase of the package are underway.
The recovery ratio is another source of concern for the power sector. During the period under review, the recovery ratio, excluding the public sector consumers, stood at 93 percent. This is an improvement of 2.9 percent over last year. However, the recoveries from public sector consumers stood at 66 percent during 9M FY14 and continue to be a source of concern for the company.
FINANCIAL PERFORMANCE 1H FY14 K-Electric's performance for 9M FY14 is yet another achievement for the firm's transforming profitability. The firm has taken off ever since it first reported after tax profits in FY12. The earnings of the firm during the first nine months of FY14 improved more than 35 percent, year on year. Its pre-tax earnings actually rose by almost double in 9M FY14 versus 9M FY13. Where the firm's revenues were only 1.7 percent higher in 9M FY14 versus 9M FY13, the growth in bottom line is a testament to improving efficiencies as the profits soared to new heights, maintaining the high growth momentum gathered last year.
Since FY12, the firm has not only been able to improve its fleet efficiency, but has also been able to improve its collection ratio and its transmission and distribution losses. The company's director's reports attributes improvement in T&D losses for the increase in revenues. Two-third of KE IBCs, which represent nearly 80 percent of the revenue, has an exceptional recovery ratio of around 97 percent, as of December end. It is the remaining high, and very high, loss areas along with the public sector companies, which continue to put pressure no recoveries.
During FY14 so far, KE has seen not only better gross margins, but also an increase in operational margins and net margins due to the company's investment in TFCs and a reduction in finance cost, respectively. However, finance cost is still high on account of circular debt. Despite all efforts, K-Electric continues to face the challenge of circular debt, which includes receivables from Karachi Water and Sewerage Board and City District Government Karachi.
OUTLOOK K-Electric continues to face challenges regarding the rising receivables from the government for tariff adjustment. So, while all the firm moving towards improved operation and financial performance, the power company could do much better if there are no delays in the payment by the government.
Amid tough times like the tussle of power purchase from NTDC and the supply of gas, KE has just recently signed an accord for stable gas supply with its key supplier, SSGC. The arrangement reads that SSGC would maintain a minimum supply of 210mmcfd during summers and 130mmcfd in winter, for KE to be able to maintain its current load management regime. Given the not-so-friendly-relations between KE and SSGC one hopes that SSGC honours its commitment.
Also, the firm has entered into Islamic bond market, which will reduce its dependence on bank credit to finance receivables. K-Electric issued Sukuk worth Rs 6 billion for financing the firm's permanent working capital requirement. Also the power generation and distribution company has also embarked upon alternative power and is pursuing with Thar coal project. The company has also signed an agreement with InfoTech to roll out automated meter reading. According to the agreement, the technology company will install the solution in areas identified by K-electric.

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K-Electric Limited

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                          9MFYI2      9MFYI3       9MFYI4

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Profitability

GP margin                  3.7%        14.8%        15.3%

Operating margin          -1.0%         9.2%        10.0%

Net margin                 4.7%         3.3%         4.5%

Liquidity

Current ratio              0.63         0.72         0.73

Efficiency

Fixed asset turnover       0.63         0.83         2.20

Total asset turnover       0.41         0.48         0.48

Receivables turnover       2.48         2.45         2.00

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