Hubcos profits up 57 percent as margins improve

Triggered by weak currency and higher tariffs, Hub Powers net earnings surged by 58 percent for the quarter ended September 2009, despite a sharp decline in topline revenues. The firms turnover for the quarter plunged by 22 percent, but operating cost fell even more -- 24 percent - owing to twelve percent depreciation in currency and higher tariff profile.
This helped Hubco boost its gross margins by 46 percent. The power giants other income fell quite substantially, as it received Rs 28.3 billion from WAPDA and paid Rs 26.93 to PSO as a part of the circular debt repayments. The firms other income mainly stems from interest payments by WAPDA on its outstanding dues; therefore with the reduction in receivables from Wapda going forward, Hubcos interest receipts are seen falling further.
With global community and financial institutions keen to plug Pakistans fiscal deficits and find a solution to the energy crises specifically, reduction in the circular debt now seems more likely. And while at one end it will ease Hubcos cash flow problem, it will also keep its other income under pressure, until the time dividend streams from its subsidiaries start flowing.
Hubco holds 75.5 percent stake in its subsidiary working on the 84-megawatt Laraib Hydro Project which is due to be commercially operational by 2012. But perhaps the biggest benefit to Hubco came from sliding financial charges which nearly halved to Rs 342 million in the first quarter fiscal year 2010, compared with Rs 633 million in the year ago period.
This was mainly because of 85 percent decline in borrowing costs as the firms running finance requirements decreased on account Rs 1.37 billion left in its kitty after it paid back part of its debt to PSO from the amount received from Wapda. Meanwhile, it continued to capitalise the loans taken for Narowal Project, which it will start expensing out from next year.

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HUBCO P&L

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RS (MN)         1QFY10   1QFY09   (+/-)%

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Sales           22,005   28,115     -22%

COGS            20,491   26,792     -24%

Gross profit     1,515    1,323      15%

Gross margin         7%       5%     46%

Other income        23       93     -75%

Finance cost       342      633     -46%

PAT              1,108      702      58%

EPS (Rs)          0.96     0.61      57%

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Source: Company Results
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