The overall performance of Kot Addu Power Company Limited (KAPCO) during 9MFY14 was largely affected by the repair and gas turbine overhaul in 1HFY14, and particularly during the second quarter of FY14. Thus, the decline in the earnings of this IPP was mainly due to lower availability of the plant capacity during 9MFY14 vis-à-vis 9MFY13.
However, the third quarter of the same fiscal year was much better in terms of profitability. Overall, the sales of the firm increased by 16 percent year-on-year in 9MFY14 due to better furnace oil prices, and improved load factors and plant availability during the 3QFY14. While gross margins shrank in 9MFY14 on a year-on-year basis, they showed improvement in 3QFY14. Besides the chills brought by repair and maintenance costs, the 8 percent year-on-year decline in KAPCO’s earnings for 9MFY14 was also brought by a decrease in its other income. Payment of receivables by the government last year has resulted in lower penal income during the nine month period. But at the same time, the bailout by the government has also resulted in the company to incur lower finance cost during 9MFY14. The 3QFY14 does not show much change in the finance cost. This is an evidence of what the market is expecting: with the circular debt accumulating once again, the quantum of short-term borrowings by the firm will rise. After most of the circular debt was cleared in July 2013, KAPCO had shifted to advance payment to its main supplier, the PSO. This arrangement will also come under threat with rising receivables.
KAPCO’s share price has underperformed the broader index (see the illustration). But that has been the case for all major IPPs. While production has been expected to go back to normal in the second half of FY14 as major overhauls have been completed for FY14, the IPPs continue to face the threat of circular debt buildup as the demand goes up in the remaining FY14 due to summer season.
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KOT ADDU POWER COMPANY LIMITED
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Rs (mn) 9MFY14 YoY chg 3QFY14 YoY chg
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Sales 82,834 16% 25,900 15%
Gross profit 8,264 -11% 3,647 16%
Other income 2,820 -36% 1,246 -6%
Operating profit 10,826 -19% 4,809 9%
Finance cost 3,098 -37% 1,333 -3%
Profit after tax 5,214 -8% 2,370 20%
EPS (Rs) 5.92 -8% 2.69 20%
Gross margin 10.0% 14.1%
Operating margin 13.1% 18.6%
Net margin 6.3% 9.2%
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Source: KSE Notice
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