KAPCO in 1HFY23

The Power Purchase Agreement (PPA) of Kot Addu Power Company Limited (PSX: KAPCO) expired in October 2022, which resulted in the plant being out of operations. This can be seen in its recent quarter’s financial performance as KAPCO announced a huge decline in its 2QFY23 earnings.

KAPCO’s turnover for the second quarter of FY23 received a massive blow of 88 percent year-on-year due to the plant being out of operations since the IPP’s PPA expiry. This resulted in significant decline in dispatches by 95 percent year-on-year. And with higher cost of sales relative to the topline, the IPP incurred a gross loss for the quarter where gross margins dipped form 9.4 percent in 2QFY22 to -18.7 percent in 2QFY23.

KAPCO’s bottomline however was still able to post positive earnings due to the contribution made by the other income in the higher interest rate scenario. However, growth in finance cost also restricted the profitability. KAPCO’s profits in 2QFY23 fell by 68 percent year-on-year.

Overall, KAPCO’s reveneus in 1HFY23 were seen falling by 53 percent year-on-year. The decline in dispatched was also witnessed in 1QFY23 on the back of lower demand from the power purchaser. The overall country power generation also decreased by 10 percent year-on-year during the quarter. Again, the other income lent its support to the bottomline due to higher interest rates, while the finance cost controlled bottomline growth which stood down by 43 percent year-on-year. The company also announced Rs3.5 per share dividend along with the result.

Though IPP’s only source of earnings currently is the other income that consists of interest on cash and short term investments since the expiration of the PPA, it is likely that the company’s request for tariff determination and the extension of the PPA will be accepted as the plant has been included in IGCEP plan prepared by NTDC as highlighted in a research note by the Optimus Capital Manage-ment (Pvt) Limited.