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Saif Power Limited (PSX: SPWL) was incorporated in Pakistan as a public limited company in 2004. The company commenced its operations in 2010. The company owns, operates, and maintains a combined cycle power plant with a nameplate capacity of 225 MW. It is engaged in generating and selling electricity to Central Power Purchasing Agency Guarantee Limited (CPPA-G).

Pattern of Shareholding

As of June 30, 2023, SPWL has a total of 386.47 million shares outstanding which are held by 6760 shareholders. Associated companies, undertakings, and related parties have the majority stake of 40 percent in the company followed by the local general public holding 13.62 percent shares of SPWL. Banks, DFIs, and NBFIs account for 12.01 percent shares of the company while Directors, CEO, their spouse, and minor children hold 11.5 percent shares. Around 1.77 percent of SPWL’s shares are held by the general public and 1.41 percent by insurance companies. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

Barring 2021 and 2022, SPWL’s topline has posted a year-on-year decline during the period under consideration. Its bottom line rose only in 2019 followed by an unabated descending journey. SPWL’s bottom line hit its lowest level in 2023. The company’s margins which climbed up until 2020 plunged thereafter. In 2023, SPWL’s margins stood at their weakest level. The detailed performance review of the period under consideration is given below.

In 2019, SPWL’s topline tumbled by 10.66 percent year-on-year. The company’s net generation fell by 35.17 percent during the year with load factor clocking in at 40.19 percent versus 62.86 percent in the previous year (see the graph “Net generation versus Load Factor”). This was due to reduced requirements by the power purchaser. During the year, the plant was fully operated on RLNG fuel as against last year where 2,769 MWh were generated on HSD fuel. The cost of sales dropped by 21.65 percent in 2019 due to lower raw materials consumed in line with curtailed generation. Furthermore, insurance recovery of Rs.652.97 million also contributed in driving the cost down. Gross profit improved by 23.45 percent in 2019 with GP margin rising up from 24.4 percent in 2018 to 33.7 percent in 2019. Administrative expense multiplied by 15.69 percent in 2019 mainly on account of higher payroll expense, depreciation on right-of-use assets, legal & professional charges as well as fee & subscription charges incurred during the year. While return on investment considerably fell during the year, hefty profit on deposit accounts sustained other income in 2019. Operating profit grew by 23.71 percent in 2019 with OP margin clocking in at 32.6 percent versus 23.5 percent in 2018. Finance costs surged by 35.5 percent in 2019 on account of monetary tightening. The company considerably reduced its debt profile during the year. Net profit enhanced by 20.34 percent in 2019 to clock in at Rs.3649.95 million with EPS of Rs.9.44 versus EPS of Rs.7.85 recorded in the previous year. NP margin also boasted significant improvement to clock in at 24.5 percent in 2019 versus 18.2 percent in 2018.

In 2020, SPWL recorded a 40.14 percent year-on-year decline in its net sales. The outbreak of COVID-19 shattered the economic and social activity in the country, resulting in sluggish power demand. Load factor stooped to its lowest level of 27.51 percent in 2020 with net generation clocking in at 460,948 MWh, down 35.64 percent year-on-year. Out of the total electricity generated during the year, 5691 MWh were generated using HSD fuel. Cost of sales nosedived by 43.44 percent in 2020 on account of lower cost and quantity of raw material consumed during the year due to COVID-19. Considerable cut in depreciation expense and impairment loss also pushed the cost down in 2020. Gross profit shrank by 33.64 percent in 2020, however, GP margin ticked up to its peak level of 37.3 percent. Administrative expenses largely stayed intact in 2020. Other income slid by 28.43 percent in 2020 on the back of a paltry return from financial assets. Operating profit nosedived by 34.75 percent in 2020 with OP margin clocking in at 35.5 percent. Finance costs slumped by 33.93 percent in 2020 due to monetary easing in the later part of the fiscal year. While the company completely paid off its long-term debt in March 2020, it had to raise additional working capital loans to sustain its operations amid surging circular debt and rising receivables due from the power purchaser. Net profit contracted by 35 percent to clock in at Rs.2371.50 million in 2020 with EPS of Rs.6.14 and NP margin of 26.6 percent.

In 2021, SPWL’s topline boasted a staggering 83.69 percent year-on-year rise. With the resumption of economic activity, SPWL’s load factor considerably improved to 45 percent in 2020. This resulted in 45 percent growth in the company’s power generation which stood at 747,923 MWh in 2021, 87090 MWh of which were generated on HSD fuel in 2021. Cost of sales multiplied by 141.33 percent in 2021 due to an increase in the quantity and cost of raw materials consumed during the year as well as elevated operational & maintenance charges incurred during the year. This slashed the gross profit by 13.17 percent in 2021 with GP margin drastically falling down to 17.6 percent. Administrative expenses posted an uptick of 2.13 percent in 2021. A momentous spike of 63.89 percent in payroll expense was largely offset by lower legal & professional and consultancy charges as well as low rent, rate, and taxes paid during the year. Other income picked up by 102.17 percent in 2021 due to robust return on investment and deposit accounts as well as higher insurance claims. During the year, SPWL invested Rs.1000 million in TDRs and Rs.15.664 million in T-bills. Besides, the company also purchased an additional 440,441 fully paid ordinary shares of Saif Cement Limited (SCL) which increased its holding in SCL to 96.39 percent. The company’s liquidity position also greatly improved in 2021 as it received the first installment of 40 percent of its receivables as per agreement with GoP and CPPA-G. Operating profit slumped by 13.9 percent in 2021 with OP margin slipping to 16.6 percent. Finance costs dropped by 3.46 percent in 2021 due to monetary easing. Net profit dwindled by 17.41 percent year-on-year to clock in at Rs.1958.52 million in 2021 with EPS of Rs.5.07 and NP margin of 11.9 percent.

In 2022, SPWL recorded 39.5 percent year-on-year growth in its net sales. While the load factor dropped to 37 percent in 2022, resulting in a net generation of 616,697 MWh, down 17.55 percent year-on-year, topline growth was on account of higher fuel charges. 23,705 MWh were generated on HSD fuel while the remaining 592,993 MWh were generated on gas in 2022. Cost of sales spiked by 43.46 percent in 2022 due to exorbitant fuel charges, operation & maintenance charges, insurance expenses as well as depreciation expenses incurred during the year. Gross profit grew by 21 percent in 2022, however, GP margin dipped to 15.3 percent. Administrative expenses surged by 25.93 percent in 2022 due to elevated payroll expenses coupled with an upsurge in legal & professional charges due to its ongoing pending issues with SNGPL. Other income boasted 310.20 percent year-on-year enhancement due to hefty profits earned on deposits and investments coupled with gain on the sale of fixed assets recorded during the year. Operating profit mounted by 21.03 percent in 2022 with an OP margin of 14.4 percent. 75.47 percent escalation in finance cost in 2022 was the result of monetary tightening as well as a momentous rise in working capital lines. This resulted in a 0.4 percent decline in SPWL’s net profit in 2022 which clocked in at Rs.1950.66 million with EPS of Rs.5.05 and NP margin of 8.5 percent.

In 2023, SPWL’s topline slid by 16.73 percent. Load factor dropped to 29 percent in 2023 with net generation clocking in at its lowest level of 440,208 MWh, down 28.62 percent year-on-year. The plant completely operated on gas in 2023. Curtailed generation was the result of lower demand by the power purchaser coupled with the overhaul and maintenance of the steam turbine during the year after almost six years. Unlike previous years, where overhaul expenses were charged annually based on the operating hours of the plant in a particular year, the revision of accounting standards implied that the additional expense charged in the previous years was reversed and incurred in the current year. This translated into a momentous rise in operational & maintenance charges in 2023. Gross profit slid by 20 percent in 2023 with GP margin registering its lowest level of 14.7 percent. Administrative expenses ticked up by 5.67 percent in 2023 due to higher payroll expenses which were somewhat offset by lower legal & professional charges incurred during the year. Other income multiplied by 188.83 percent in 2023 due to higher return on investment followed by a gain on disposal of property, plant & equipment, and profit of bank deposits earned during the year. Operating profit ticked down by 20.84 percent in 2023 with OP margin clocking in at 13.7 percent. Finance cost surged by 68.45 percent in 2023 due to monetary tightening while the company’s outstanding short-term loans slid during the year. Net profit dipped by 82.77 percent to clock in at Rs.336.10 million in 2023 with EPS of Rs.0.87 and NP margin of 1.8 percent.

Recent Performance (9MFY24)

SPWL’s net sales dipped by 48.2 percent in 9MFY24. Dispatch level dropped to 0.13 percent during 9MFY24 versus 8.04 percent during the same period last year. The decline in operational & maintenance charges as per revised accounting standards coupled with lower power generation resulted in a 60.73 percent lower cost of sales for the period. This translated into a GP margin of 43.3 percent during 9MFY24 versus 25.2 percent recorded during the same period last year. Administrative expenses spiked by 39.84 percent during 9MFY24 mainly driven by higher payroll expenses. Other income progressed by 450.93 percent during the period. This was due to a higher return on investment. During 2023, the company also extended a long-term loan to Saif Textile Mills Limited. During the period under consideration, the board also approved running a finance facility for the same. Loan to associated company might also have yielded a return for SPWL, adding up to its other income. Operating profit contracted by 9.25 percent during 9MFY24 with OP margin clocking in at 40.7 percent versus 23.3 percent recorded during the same period last year. Despite the unprecedented level of discount rate, the company was able to cut down its finance cost by 25.33 percent during 9MFY24 as the company squeezed its short-term borrowings. This enabled SPWL to record a net profit of Rs.2.14 million during 9MFY24 versus a net loss of Rs.100.06 million recorded during the same period last year. EPS stood at Rs.0.01 in 9MFY24 versus a loss per share of Rs.0.26 in 9MFY23. SPWL registered an NP margin of 0.2 percent during 9MFY24.

Future Outlook

Seasonal increase in demand is expected during the ongoing quarter. Moreover, fuel cost is expected to escalate further as reportedly NJ hydropower will remain non-operational for another 18-24 months on account of issues with headrace tunnel pressure (HRT).

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