SNGPL in 9MFY19

BR Research July 26, 2019

After the much delayed announcement of FY18 financial performance that came from the delayed determination of final revenue requirement of the company by OGRA for that year, Sui Northern Gas Pipelines Limited (SNGPL) has recently announced all the quarterly results for FY19.

Following the growth in earnings in the previous quarters, 9MFY19 financials show that the company’s profits continued the growth streak. Growth drivers for SNGPL were higher gas sales due to higher gas prices as well as increasing share of RLNG, higher UFG allowance and higher return on assets due to increased capitalisation.

Where the company’s sales soared by 67 percent and 100 percent respectively for 9MFY19 and 1HFY19, SNGPL saw a 91 percent increase in gross profits for 9MFY19 and 84 percent rise in 1HFY19, on a year-on-year basis. Though colossal growth was seen in finance cost, some support to the bottom-line came from increase in other income and contained administrative expenses. Profit after tax for SNGPL was up by 31 percent, year-on-year in 9MFY19, and by 48 percent year-on-year in 1HFY19. UFG benchmark has been revised as a result of a study carried out by OGRA. That not only increased the fixed UFG benchmark from 4.5 percent to 5 percent from July 01, 2017, but it made a further upward adjustment of 2.6 percent – taking the total UFG to 7.6 percent – for achievement of KPIs as determined by OGRA. And the rate of return used for estimated revenue requirement for FY19 has been set at a WACC of 17.43 percent.

The issue for the gas utility lies with its liquidity, which is hampered by rising receivables from the government in form of differential margin. Differential margin is created by the disparity between prescribed gas prices by OGRA and notified consumer tariff that takes into account the subsidy as well. This growth in differential margin has forced the company to resort to bank borrowings, which is the reason why finance cost has been escalating too.

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