NPL's weak performance .

Nishat Groups IPP, Nishat Power Limited (PSX: NPL) has seen its revenues come down in the last couple of years - from Rs27.5 billion in FY14 to Rs13.9 billion in FY16 to be precise. Besides lower oil prices, a key factor in lower bottomline is the declining power generation in the same period.

Simialrly, tepid growth in earnings has largely been due to a gradual decline in penal markup income, muted growth in O&M savings along with restricted topline. The story of lower revenues, and hence lower earnings continue in FY17; in 1HFY17, the firms topline dwarfed by almost 19 percent year-on-year, while profits were down by over 17 percent year-on-year. this was despite the fact that furnace oil prices have been recovering, showing that lower dispatch of power was the key culprit behind weak sales.

However, as result of the overhaul procedure back in FY16, the company managed to implement effective cost management, resulting in lower cost of sales, which can be seen from improvement n gross margins. Net margins too inched up due to lower finance cost; the IPPs short term borrowings and long term debt has been declining over the past few years.

On the long-term growth side, NPL had planned for a 660MW coal based power plant which was initially abandoned in light of logistic issues and governments ban on imported fuel plants. The project is now beign developed under CPEC where NEPRA has admitted the application of Nishat Energy Limited (NEL), NPLs subsidiary for consideration of the grant of generation license for its 660MW coal power plant. However, the brokerage industry is still skeptical of the project.

Nonetheless, the IPPs profitability in future depends on three key variables: one, oil prices; two, receivables outstanding; and three, how it tackles utilization factor, which are have been down recently and are expected to remain a bottleneck as coal based facilities come online lowering fuel savings.