Nishat Power Limited is the third Independent Power Producer (IPP), which was incorporated as a public limited company in 2007 under the Power Policy 2002, after Attock and Atlas. This IPP is a subsidiary of Nishat Mills Limited of Nishat Group. Nishat Group is a conglomerate that has a presence in many sectors like cement, textile, insurance, banking and aviation. Through Nishat Mills Limited, the group currently holds 56.84 percent of the thermal based IPP, Nishat Power Limited.
The function of Nishat Power Limited is principally to build, own, maintain and operate a fuel-fired power station in District Kasur of Punjab with a gross capacity of 200MW. Its main customer is National Transmission and Dispatch Company Limited (NTDC), and it has signed a fuel supply agreement (FSA) with Shell Pakistan for the supply of fuel to the oil company.
Operations
Nishat Power Limited completed its three years of operations in FY13. Though after achieving 1,473 Gega Watt hours (GWh) of generation in the first year of the project's operations, generation dipped by 28 percent in FY12 due to non-availability of fuel on account of non-payment by the power purchaser. However, FY13 turned out to be better for NPL and the other IPPs in terms of generation as well as efficiency: The plant dispatched 1,276 GW of electricity in FY13 to its customer NTDCL, up by 20 percent year-on-year compared to 1,063 GW in FY12. It operated at an average capacity factor of around 75 percent in FY13 compared to the only 62 percent in FY12. A comparatively lower average capacity load factor was due to lower percentage load during the five months from October till February 2012.
Now, with FY14 coming to an end, the plant operated at optimal efficiency and dispatched 1,087.445 GWh of electricity to NTDCL during the nine-month period, which is 15 percent higher year on year. Similarly, it operated average optimal capacity of 84.67 percent in 9MFY14.
FINANCIAL PERFORMANCE Nishat Power Limited received Rs 7.08 billion from the government after the company signed a MoU with NTDCL in June 2013 to finance the receivables similarly; other IPPs were also relieved from their stressful liquidity position in 2013, which has been the chief reason for improved production and efficiency of the sector.
During FY13, significant electricity production and increase in electricity prices helped the top line of the firm. Bottom line in FY13 registered a growth of 34 percent year on year due to operation and maintenance savings and fuel efficiency.
However, earnings of Nishat Power Limited remained flattish during the 9MFY14. Its latest financial performance reveals that the IPP's earnings increased by only four percent, year on year during 9M FY14.
Flattish earnings of the previous quarters have had a significant role in overall 9M FY14 performance. When looked at the third quarter alone, earnings for the firm propelled by 12 percent year on year, ie for 3Q FY14. On the whole, the main growth drivers of the NPL during the 9M FY14, and particularly 3Q FY14 period have been improvement in the load factors and production, and a reduction in finance cost. The latter has been the result of resolution of circular debt and the resultant decrease in receivables. The 31 percent year-on-year fall in finance was a boost for the earnings of Nishat Power, which otherwise would have slipped, had finance cost remained at level similar to that of 9M FY13. On the flip side, this fall in circular debt has also been a cause for restricted growth in the earnings. Lower penal income during the period kept a lid on gross profits.
LIQUIDITY Circular debt is a horror for Independent Power Producers (IPPs). It has once again started accumulating; the 9M FY14 report shows an amount equal to Rs 816.041 million deducted by National Transmission and Dispatch Company Limited from the Capacity Purchase Price (CPP) invoices, as the plant was not fully available for power generation. It further states that with the consent of NTDC, the company has taken up this matter to the expert as per dispute resolution mechanism envisaged in Power Purchase Agreement, which makes the company feel that the amount is recoverable. Total receivables from NTDC at the end of March 2013 stood at Rs 10,268.199 million, out of which overdue receivables are Rs 7,677.438 million.
OUTLOOK
FY14 has marked a good start for Nishat Power Limited as the plant operated at an optimal efficiency of astounding 81 percent due to better fuel availability during the first quarter, in terms of efficiency, the 9M FY14 continued to be good. However, the upsurge in the circular debt has started raising red flag for the IPP world. Though the government cleared the circular debt in June 2013, the overdue receivables have started piling up again. Also, the IPPs are bound to be affected by the rise in the interest rates that could further diminish the charm building up in power sector.
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Nishat Power Limited
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FY11 FY12 FY13 9MFYI4
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Profitability
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Gross margin 23.2% 23.4% 20.1% 16.4%
Operating margin 22.9% 23.3% 19.7% 16.0%
Net margin 9.0% 9.7% 10.9% 10.3%
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Liquidity
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Current ratio 1.63 1.47 2.10 2.14
Debt to equity 2.29 1.64 1.17 1.00
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Efficiency & Market
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Fixed asset turnover 1.32 1.41 1.79 1.54
EPS (Rs/share) 5.31 5.75 7.73 6.05
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Source: Company accounts
CORREIGNDUM Apropos an item carried in the 'Brief Recordings' section on June 23, 2014, titled "Continental Biscuits intends to maintain the momentum" - Managing Director, Continental Biscuits Limited Pakistan. The title erroneously mentioned Rafey Zuberi as Managing Director of Continental Biscuits Limited Pakistan. Rafey Zuberi is in fact the 'Marketing Director' of the firm.
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