EPQL – 2Q earnings upbeat

After a decline in earnings in 1QCY21, Engro Powergen Qadirpur Limited (PSX: EPQL) posted a growth of 22 percent year-on-year in 2QCY21. Growth in earnings for EPQL stemmed from higher revenues for the IPP.

Increase in company’s topline came from better utilization factors due to the improved position of the IPP on the merit order as the cost structure is favorable versus FO-based plants that have seen increase in furnace oil cost. EPQL is a 217-megawatt power plant that uses permeate gas from Qadirpur gas field to generate electricity. Higher finance income, which is the penal income earned on rising receivables or trade debts also supported the bottomline growth.

However, EPQL’s performance in 1HCY21 was affected by weaker 1QCY21, which resulted in overall decline in profits by 31 percent year-on-year despite growth in topline and contribution by penal income. Recall that topline for EPQL fell by over 16 percent year-on-year, which was due to debt servicing component no longer being applicable in the event that the company’s long-term debt was retired in 2020. And in spite of a notable growth in finance income, EPQL’s 1QCY21 earnings contracted by over 55 percent year-on-year.

An issue for EPQL plant since 2018 has been the depletion of gas from Qadirpur gas field, for which the plant now runs of mixed mode of comingling gas with diesel (HSD), where diesel is used as an alternate fuel when gas availability drops below a threshold. The current ratio is around 70:30 for gas and diesel, which also relatively increases the company’s cost of power generation. There are also reports that the plant could be converted into an RLNG based plant in case the current fuel-mix cost exceeds FO-based cost.