Nishat Power Limited (NPL) announced its full year financial results for FY11 yesterday reporting earnings of Rs5.3/share. It was 3883 percent higher in comparison to previous years earnings but stats do lie at times. Comparison with the previous year holds absolutely no significance as the company had just started its operations back in FY10. In contrast to the bigger sector players such as Hubco and Kapco, NPL is not tracked by analysts yet, therefore it would be difficult to suggest whether the reported earnings were in line with market expectations or not. If the share price at the bourse is any indicator though, it shows the market was not delighted with the result announcement. NPLs stock price slumped to its lower circuit breaker after the earnings were notified, suggesting the FY11 performance was off the mark. The sales, if tracked on a quarterly pattern remained pretty much consistent with the previous three quarters. The IPPs predetermined formula for electricity tariff is believed to be the key for consistent revenue performance as the Power Purchase Agreement ensures that the NTDCL will be the buyer for 195 MW of electricity generated by NPL for 25 years at the rate of $0.1212 per KWh. The worrying sign though is the massive finance cost that made a considerable dent to the bottom line performance. That the financial charges were slightly above 60 percent of the total operating income; signifies the trap in which the company currently finds itself. The inter-corporate circular debt has long been eroding the earnings of the power producers and NPL, unlike its elder counterparts is more exposed to this burden, primarily because of the nature of its Fuel Supply Agreement. Nishat Power has a 10-year contract with a private fuel supplier, Shell Pakistan which does not give NPL the luxury of passing on the circular debt impact to the private fuel supplier. FY11 detailed balance sheet numbers are yet to be made public, but the recent trend shows the inability of the company to pass on the circular debt impact, as a result of which the net receivables have gone up, in turn driving up financial charges. The top line performance has never been and not likely to be a cause of concern for IPPs in Pakistan. Their fate pretty much depends on how the circular debt situation pans out: the longer it persists, the more troublesome it will get for NPL, especially when the normal tax regime will start applying on its profitability.
================================== NISHAT POWER LTD ================================== Rs (mn) FY11 FY10 ================================== Sales 20,987 1,018 Cost of sales 16,119 796 Gross profit 4,867 223 Profit margin 23% 22% Operating profit 4,807 252 Finance cost 2,914 180 PAT 1,879 47 EPS (Rs) 5.31 0.14 ---------------------------------- Source: KSE notice ==================================
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