Kot Addu Power Company Limited (PSX: KAPCO) released its 1QFY19 result yesterday which saw the company’s profit increase by almost 43 percent. The sizeable increase in earnings can be attributable to the massive increase in KAPCO’s other operating income which more than doubled on account of rising overdue receivables.
The company’s top line grew by 46 percent on a year-on-year basis which was mostly attributable to increase in dispatches during the quarter. Recall that RLNG was made available to the plant and the share of FO has gone down drastically in KAPCO’s fuel mix. According to a research note by Arif Habib Limited (AHL), the company’s RLNG based generation has increased from 20 percent in 1QFY18 to 74 percent in the 1QFY19.
However, even though KAPCO’s top line experienced decent growth, this also meant a higher operation and maintenance cost (O&M) which dragged down its profitability margins with gross margins plunging by almost 451 bps as compared to the same period last year.
The firm’s other operating income came to the rescue which is basically its overdue receivables which had increased to Rs96 billion by Jun-18. In addition, KAPCO’s payables to Pakistan State Oil (PSO) for fuel supplies amounted to Rs27 billion till that period.
This has led to the company’s finance cost increasing by 31 percent as compared to 1QFY18 primarily on account of higher short term borrowings to pay for fuel and working capital needs. The rise in overall power sector circular debt which stands at above Rs1 trillion now has put a strain on the cashflows of all Independent Power Producers (IPPs) and KAPCO has been no exception.
Overall, the company’s 120 percent surge in other operating income led the EPS to increase by 43 percent on a year-on-year basis. KAPCO’s power purchased agreement is going to expire in FY21 and there are chances it will be extended subject to its ranking in the merit order at that point of time.
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