EPQL –earnings slip 1QCY22

Engro Powergen Qadirpur (PSX: EPQL) announced its financial performance for the firstquarter of 2022 yesterday with a sharp decline in earnings for the quarter.

A key factor for a drop in profits for 1QCY22 was the decline in revenue. EPQL’s revenues witnessed a dip of 41 percent year-on-year, and the power company’s earnings were seen falling by over 60 percent year-on-year. The decline in revenues was due to weaker utilization, which has always been a driving factor for profitability. However, research report by Optimus Capital Management highlights that another factor that effected the topline, and hence the bottomline, was the application of period weighting factors on the CPP revenues. This also led to decline in earnings in the last quarter of CY21 quarter-on-quarter.

Where decline in gross profits as well as higher administrative expense put further pressure on the bottomline, slight uptick in net finance income for the quarter by around three percent year-on-year offered some respite. The company did not announce any dividend for the quarter.

Previously, in CY21, the independent power producer posted a decline in earnings as well. However, EQPL reported a growth in revenues due to higher power dispatch and higher load factor amid rising electricity demand and higher merit order ranking. Despite that, the company witnessed a decline in profits in CY21 due to the absence of the debt repayment component

The IPP has started facing gas curtailment from Qadirpur gas field as it continues to deplete. In his interview with BR Research recently, the CEO of EPQL acknowledged that the gas from Qadirpur field has started depleting and will drop below the level required by the plant to operate. There are two options for EPQL to address the gas scenario: either shutdown the plant, or to co-mingle the gas with an alternate fuel such as HSD or RLNG for which the company has approached the government for RLNG.