It is not always bad being trapped in the infamous inter-corporate circular debt, at least not when your buyers and suppliers both belong to the government. This is exactly what Kot Addu Power Companys (Kapco) financial results for FY11 depict, as the power producers earnings swelled considerably despite a slide in electricity generation. The firms top line trimmed on account of low load factor achieved during the period which is believed to be to the tune of 47~48 percent (FY10 load factor: 56%). The company undertook several plant overhauls during the period affecting the electricity generation. Matters worsened as the plant was not able to procure gas for electricity generation during 4QCY11, resulting in lower than desired load factor; thus a dip in revenue. The gross profit though remained on the higher side in comparison to the corresponding period of the previous year as the capacity purchase price for the final quarter is estimated to have increased by 3 percent mainly on account of the indexation factor as the rupee depreciated 2.8 percent against the greenback while US CPI registered growth of 1 percent. Furthermore, the gross margins look relatively inflated for the period as FY10 saw an abnormally high overhaul and maintenance cost (Rs1.8 billion), which is likely to have stayed considerably low during FY11. What kept the top line from significant erosion was a significant jump in other operating income which more than doubled over the previous year; offsetting the surge in financial charges stemming from penal interest payments and payments on short term borrowing to manage the working capital. Kapco is no stranger to the circular debt but it is not necessarily a victim as it successfully managed to pass on the impact of high payables to its suppliers. Having Wapda as the sole buyer can be tricky in these circumstances where the circular debt amount keeps escalating. But having another government player on the supply side of the chain provides the much needed breather as it offers the leverage of delaying payments to the fuel supplier - a luxury that power producers having private fuel suppliers do not enjoy and face severe liquidity crunch and profitability erosion. Going forward much will depend on the availability of gas for electricity generation if the top line has to improve, as furnace oil based generation will keep the load factor under pressure. The circular debt issue is not that big a threat to the company financially, but it does take time and effort to manage - the sooner it goes away the better it is. Kapco continues to delight its shareholders in the shape of high dividends, offering a healthy dividend yield of 16 percent at the current market price, which happens to be the highest amongst peer companies. No wonder, the market maintains on overweight stance on the companys stock as the leading defensive play at the bourse.
============================================== KOT ADDU POWER COMPANY ============================================== Rs (mn) FY11 FY10 chg ============================================== Sales 74,351 85,935 -13% Cost of sales 63,653 76,011 -16% Gross profit 10,698 9,924 8% Gross margin 14% 12% 25% Other income 8,381 3,774 122% Operating profit 18,611 13,066 42% Finance cost 8,704 5,336 63% PAT 6,527 5,089 28% EPS (Rs) 7.41 5.78 ==============================================
Source: KSE notice
Comments
Comments are closed.