Sitara Energy Limited (PSX: SEL) was established in 1991 with commercial operations starting in October 1995. The company deals in generation and distribution of electricity with the head office based in Karachi. The power plant is located at Tehsil Jaranwala, Faisalabad. Starting off with a 48MW furnace oil based power plant SEL subsequently set up a 30MW gas based plant. The switch in plant type was done in view of the increase in furnace oil prices during the last decade.
Historical performance SEL registered declining profitability in FY14 as compared to the previous year. Revenue for the year also saw a decrease due to lower demand of furnace oil based electricity, according to the company report. The gross profit took a hit due to increased cost of generation amidst rising fuel costs, which ultimately led the gross profit margin to decline from 10.25 percent in 2013 to 7.83 percent in 2014. The average load of RFO-based electricity for the year was 23.12MW as compared to 24.34MW the previous year.
The company's performance took a further plunge in FY15 due to low sales revenue registering a fall of over 27 percent year-on-year. The EPS also fell almost by half to Rs 5.50 from previous year's Rs 10.71. The gloomy performance and the cause of the dip in gross profit could be attributed to both low revenue as well as increased cost in generation. The sales revenue took a hit due to the disconnection of power supply to FESCO in March 2015 as the Power Purchase Agreement (PPA) could not be finalised with the DISCO in Faisalabad.
Another reason for the decrease in sales and profitability was NEPRA's decisions regarding fuel price adjustment review and constant decrease in furnace oil prices from October 2014. There was also a decline in the amount of electricity generation due to severe gas shortage and shutdowns over a prolonged period.
Moreover the generation mix of RFO: GAS changed from 69:31 in FY14 to 79:21 in 2015 which led to a surge in generation cost. The company also maintained a certain level of safety stock of furnace oil which decreased the profitability due to fortnightly billing on price of furnace oil as per terms of the original power purchase agreement with FESCO.
Even though FY16 saw a 16 percent fall in revenue for SEL yet the cost of generation also declined by 21 percent. The result was an increase in gross profit for the company by an impressive 63 percent. Finance cost fell by 22 percent whereas other income also declined by almost 87 percent. However the profit after tax increased by 54 percent which translated into an EPS of Rs 8.51 compared to Rs 5.5 in FY15.
According to the director's report the dip in sales revenue was attributable to the continuous fall in oil prices which was a pass through item and the resultant fuel price adjustments by NEPRA. When it comes to operational performance SEL generated 315,632 MWh in 2016 compare to 264,978 MWh in 2015 reflecting an increase in production by 19.12%. This led to a reduction in per unit manufacturing cost by 13.94%, excluding cost of fuels & lubricant. Moreover, generation mix of RFO: Gas changed from 79 percent: 21 percent in 2015 to 73 percent: 27 percent in 2016 as a result of generation plans based on comparative cost analysis of both fuels.
Snapshot 9MFY17 SEL started the year at par with the benchmark and quickly overtook the KSE-100 index, showing good performance till November 2016. However, since then the script has been on a continuous downward trajectory due to weakening fundamentals as well as the overall political uncertainty that has gripped the market over the past few months.
In its Director's report the company notes that efforts are being made to increase the load demand from the existing BPCs as well as connecting fresh BPCs including establishment of a new project, as an additional BPC, within the group. It has also managed to get zero rating facility from the Federal Board of Revenue (FBR) for two of its BPCs.
Stock performance SEL started the year at par with the benchmark and quickly overtook the KSE-100 index, showing good performance till November 2016. However since then the script has been on a continuous downward trajectory due to weakening fundamentals as well as the overall political uncertainty that has gripped the market over the past few months.
Future outlook SEL's future prospects depend on the reliable supply of LNG for the industrial sector along with continued low RFO prices. The company should also focus on maintaining its existing Bulk Power Consumers (BPCs) along with diversifying its customer base as supply to only one DISCO could be damaging as previously witnessed in the company's history.
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Sitara Energy Limited (SEL)
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Rs (mn) FY11 FY12 FY13 FY14 FY15 FY16
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Net Sales 3753 4866 5184 5036 3659 3074
Cost of generation 3306 4341 4652 4641 3433 2706
Gross profit 448 525 532 395 226 369
Other income 10 97 2 74 121 16
Finance cost 296 270 200 155 139 108
PAT 91 251 249 205 105 162
EPS (Rs) 4.77 13.17 13.06 10.71 5.5 8.51
Gross margin 12% 11% 10% 8% 6% 12%
Net margin 10% 9% 9% 6% 3% 5%
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Source: Company accounts
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Shareholding pattern (SEL)
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Shareholder Shares held Percentage
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Directors, CEO and children 7,336,040 38.44
Sitara Fabrics Limited 656,000 3.44
NIT AND ICP 256,617 1.34
Bank, DFIs, NBFIs 1,132,161 5.93
Insurance Companies 1,628,500 8.52
Modarabas and Mutual Funds 263,151 1.38
Foreign Companies 1,000 0.01
Joint Stock Companies 1,402,162 7.34
General Public (Local) 6,228,054 32.61
General Public (Foreign) 164,078 0.86
Others 24,237 0.13
Total 19,092,000 100.00
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Source: Company accounts
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