K-Electric Limited

K-Electric Limited or KESC previously, has been one of the most notorious organisations in Karachi for decades, but that perception has changed quite a lot in the recent past.
Company History The company has had a long history; it was incorporated over a century back (1913) under the Indian Companies Act to 1882. After the split of sub-continent, the company was nationalised in 1952, and then re-privatised in 2005, with the government keeping 26 percent of the stake and transferring 71 percent to a foreign consortium.
For years, the entity had not shown profits on its books owing to high transmission and distribution losses, soaring electricity theft and poor management. The much-needed management overhaul (led by Abraaj Group) came in 2008 which kicked off the company's turnaround story.
In 2011-12, K-Electric reported its first annual profit in 17 years (Rs 1.8 billion), after losses of Rs 14.6 billion (2009-10) and Rs 9.4 billion (2010-11). Early last year, the organisation got its name changed from Karachi Electric Supply Company Limited to K-Electric Limited.
Recent Profile KE is responsible for generation, transmission and distribution of electricity to a 6,500 square-kilometer area encompassing Karachi and surrounding towns in Sindh and Balochistan. It has nearly 2.5 million customers.
According to KE, it has reached a point where 60 percent of its network is free from scheduled load shedding (as compared to 50 percent in 2011-12), including 100 percent of the industrial zones for the past six years. The company visions to become self sufficient by 2020 and become a net exporter to the rest of the country beyond that.
In the past six years, KE has enhanced its generation capacity by 1,037 MW by adding four new power plants and a steam turbine. By 2018-19, the electricity producer aims to complete its projects that are in the pipeline - a coal fired power project in Port Qasim (700 MW) and an LNG-based project (225 MW).
Recent Operational and Financial Highlights In the recently announced financial results for fiscal year 2014-15, K-Electric had a top line of Rs 190.4 billion, 2 percent down year-over-year. In the past six years though, the revenue has climbed 84 percent. Electricity generation took a sizeable jump this year to 8.61 billion units (net), compared to 8.05 billion in the last year.
To cater for the soaring demand, the company also had to purchase more units in FY15, as compared to the previous year. K-Electric procured 7.5 billion units in the year ended June 2015, compared to 7.3 billion in year-ago period. That being said, the purchased amount is still lower than the figure five years back - 7.8 billion.
In FY10 and FY11, KE had to purchase more units than the net amount it produced. This trend reversed in FY12, which was also the year that K-Electric controlled the transmission and distribution (T&D) loss to under 30 percent for the first time in many years. T&D losses have been a major concern for the power sector in Pakistan.
This year, the company reported an impressive T&D loss of 23.7 percent, down 160 basis points from last year, and 1120 basis points from the figure six years ago. This shows the company has invested a great deal in enhancing its generation, transmission and distribution infrastructure and bringing down the distribution line losses.
In fact, in each of the past six years, K-Electric has had a significant net cash outflow from investing activities. Despite reporting profits, developing new projects and improving infrastructure for better efficiency has led the company to have overall cash outflows in two of the past four fiscal years.
On back of the much improved T&D losses, and downward trending purchase requirement, KE has seen its profits rally steeply in the recent periods. Despite a year-over-year decrease in top line, the company's gross profit rose 34 percent to Rs 43.2 billion (GP Margin from 16.6 percent to 22.7 percent). Profit after taxation more than doubled in FY15 to Rs 28.3 billion. From heavy losses in FY10 (net loss margin 14.1 percent), KE reported a net profit margin of 14.9 percent in the recently concluded period.
K-Electric's balance sheet has also expanded swiftly since the new management. From total assets of Rs 208 billion in mid-2010, the company now has Rs 368 billion - a 77 percent jump in five years.
Outlook Despite the rosy picture, there are a few challenges facing the company. Receivables from the public sector remain high. Also, K-Electric has Rs 35.6 billion in receivables from the GoP. Such delay in payments gives rise to cash flow issues and liquidity troubles.
On the bright side, most key financials have improved significantly since the new management took over the company. Revenues and profits have registered strong growth. With new projects set to conclude in 3-4 years, it will be interesting to see whether K-Electric will be able to fulfill its 2020 self-sufficiency promise, and that will really start exporting electricity. From the company's recent track record, such a feat is not unachievable.