Hubcos stellar stock performance at the Karachi bourse yesterday eclipsed its stupendous growth in earnings that stretched the scrip price to its upper circuit limit by the end of Thursdays trade. The 53 percent rise in earnings was no doubt, above the consensus estimates; but it was the highly unexpected dividend payout that turned investors euphoric.
The company was not expected to continue with its traditional policy of an almost 100 percent payout ratio as it was gripped in the vicious cycle of circular debt throughout last year. But beating all the odds, Hubco declared an interim dividend of Rs2.5/share, maintaining its pay-whatever-we-earn policy.
The largest independent power producer in the country with a net capacity of 1200MW maintained the previous years load factor and the average complex availability of 76 percent and 84 percent respectively for the first half ended December. The amount of electricity sold during the period was also almost identical to the 4020GWH sold in the year ago period.
But the increase in profits mainly stemmed from improved gross margins, owing to a surge in tariffs coupled with higher indexation due to a significant rupee depreciation. The companys record breaking performance in FY09 also augmented the profits as it received fatter generation bonus based on 79 percent load factor it achieved last year.
Hubcos finance cost reduced by a sizeable margin despite a sharp rise in short-term borrowings, as more than Rs1 billion was capitalized in the cost of qualifying assets.
Despite receiving two tranches of circular debt settlement by the government, the company still faces hurdles towards receivables. Wapda alone, owes a staggering Rs51 billion to the company, besides having failed to arrange the LCs worth Rs12 billion for FY10, as per the power purchase agreement. As a consequence, Hubco currently owes Rs42 billion to Pakistan State Oil for the fuel it buys for power generation purposes.
A point of concern, though, is that progress on the firms Narowal 214MW oil-fired project has been painfully slow. The company now intends to commence project operations from September 2010, after having stretched its previous deadline of March 2010.
Knowing that previous delays caused by contactors had hurt market sentiments last year, investors will keep a close eye on the project deadline. Any further delay might suck the air out of Hubcos stock, almost as quickly as it ballooned up.
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HUBCO P&L
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Rs (mn) 1HFY10 1HFY09 % chg 2QFY10 2QFY09 % chg
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Turnover 46,168 49,699 -7% 24,162 21,584 12%
Operating costs 42,389 46,732 -9% 21,898 19,940 10%
Gross profit 3,779 2,967 27% 2,264 1,644 38%
Gross margins 8.2% 6.0% 37% 9.4% 7.6% 23%
Other income 35 113 -69% 12 20 -42%
Finance cost 783 1,231 -36% 441 597 -26%
PAT 2,588 1,691 53% 1,747 989 77%
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EPS (Rs) 2.47 1.46 151% 86%
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Source: company accounts
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