Serving around 4 million consumers in commercial, domestic, general industry, fertiliser, power and cement sectors in north and central Pakistan, Sui Northern Gas Pipeline Limited is the largest integrated gas company. The Company was incorporated in 1963 as a private limited company which soon became a public limited company in 1964. It is listed on all three stock exchanges.
The transmission network runs through Punjab, Khyber-Pakhtunkhwa and Azad Jammu and Kashmir. With 48 years of experience in operation and maintenance of high-pressure gas transmission and distribution system, the Company has expanded its activities as Engineering, Procurement and Construction (EPC) Contractor to undertake the planning, designing and construction of pipelines.
The transmission network of SNGPL of over 7,613 kilometers extends from Sui in Balochistan to Peshawar in Khyber-Pakhtunkhwa. The distribution network comprises 81,828 kilometers of pipeline that covers 2,205 main towns along with adjoining villages represented by 8 regional offices through the two provinces.
Quarter highlights In order to extend its customer base during the 3 months ended with September 30, 2011, SNGPL initiated 555 kilometers distribution lines with 85 kilometers of transmission lines as work is in progress. Meanwhile, the Company also continued its digging and spade activities for Iran-Pakistan (IP) Gas Pipeline Project which has been under a great deal of attention of late.
Nervy gas sales To no one's surprise, the gas sales' volume has fallen for SNGPL for 1QFY12 due to strained gas supplies and depleting reserves of the E&P companies. For the quarter ended with September 30, 2011, the gas sales' volumes decreased by 0.4 percent to approximately 145 bcf versus 1QFY11.
Amongst other concerns, the Company has been unable to supply gas to fertiliser plants which has led to $600-700 million imports of 1.2 million tones of urea. The affect of decreasing sales' volumes can be seen from the meager growth in revenues by 6.7 percent for 1QFY12 vis-à-vis 28 percent in 1QFY11.
Tumbling profitability Whether it is gross profit margin, net margin or any other profitability indicator, during 1QFY12 SNGPL has performed worse than corresponding quarter FY11. The gross profit margin deteriorated to 1.48 percent compared to 1.76 percent in 1QFY11. Likewise, net profit as a percentage of sales has also fallen noticeably to 0.35 percent during 1QFY12.
Exceptional increase of 51 percent in gas development surcharge during the first quarter FY12 versus an equal dip in the development levy during 1QFY11 devoured the earnings of the company.
As a consequence of the widening gap between the escalating demand and dwindling supply, unaccounted for gas (UFG) also wreaked havoc to the profitability of the Company. The Company incurred a fall in the profits due to excess UFG amounting to Rs 2,177 million, an increase of 27 percent compared to 1QFY11.
Returns on equity worsened from 2.4 percent in 1QFY11 to less than one percent during 1QFY12 because of a fall in not only the net profits but also the revenue reserves. Scanty asset growth coupled with poor profitability also diminished returns on assets.
Safe asset efficiency The fixed assets are being turned over at acceptable levels as evident from the increase in the ratios for 1QFY12. Similarly, receivables turnover has also improved from 1.06 times in 1QFY11 to 1.23 times in 1QFY12
Debt financing Long-term debt to equity ratio for SNGPL has risen sharply during the quarter ended September 30, 2011, as compared to the corresponding period of FY11. This has been due to the loans taken up by the Company to finance their transmission and distribution development work.
Apart from the unsecured loans from banks and financial institutions, the Company has undertaken long-term financing from Allied Bank worth Rs 7 million at mark up rate of six-month KIBOR+1.25 percent per annum, maturing on June 30, 2016. It has acquired an additional loan under diminishing Musharaka arrangement worth Rs 2.5 million at six-month KIBOR+1.25 percent per annum with similar maturity date.
Future prospects and outlook
Situation has reached alarming heights as Sui Northern Gas Pipeline Company is faced with around 700 mmcfd gas shortfall which is expected to rise further to more than 800 mmcfd during January 2012. With severe gas shortages hitting all types of consumers, protest and demonstrations have gained momentum especially in Gujranwala, Lahore, Faisalabad and Rawalpindi.
In times of great vulnerability, the Company is involved in massive distribution and transmission pipeline construction projects with local and multinational companies. Additionally, construction licenses have been issued lately for the installation of LNG Floating Storage and Re-gasification Units (FSRU) for import of LNG to meet the prevailing shortfall in gas supply.
Like SSGC, the Company has also undertaken steps to lighten the misery of gas shortage by considering the option of injection of Synthetic Natural Gas SNG into its system. SNGPL is also working to bottle and market LPG cylinders to the prospective areas given the mounting demand of energy and fuel.
Moreover, the Company expects to get additional gas supply of 500 mmcfd in the years ahead from the Iran-Pakistan (IP) Gas Pipeline Project. However, the mounting energy shortage and hence anger of the domestic and commercial consumers and the industries require far more endeavour in the immediate term.
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SUI NORTHER GAS COMPANY (SNGPL)
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1QFY10 1QFY11 1QFY12
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Profitabilty
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Gross profit margin 2.91% 1.76% 1.48%
Net profit margiin 1.54% 1.00% 0.35%
Return on total assets 0.43% 0.33% 0.12%
Return on equity 3.11% 2.41% 0.89%
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Liquidity and Solvency
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Current ratio 0.80 0.83 1.00
Debt to Assets 0.86 0.86 0.86
Debt to equity ratio 6.17 6.26 6.47
Long term debt to equity 0.09 0.07 0.57
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Debt coverage
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Financial cost coverage ratio 5.21 1.99 1.34
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Efficiency
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Fixed asset turnover 0.42 0.53 0.55
Total asset turnover 0.28 0.33 0.34
Receivables turnover 1.36 1.06 1.23
Payable turnover 0.69 0.83 1.13
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Market
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EPS 0.94 0.84 0.31
Market price (Sep 30) 28.04 30.86 20.00
P/E ratio 29.83 36.74 64.52
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Source: company accounts
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