Lalpir Power Limited

Lalpir Power Limited (PSX: LPL) is a power producer with the principal activities to own, operate and maintain an oil fired power station at Mehmood Kot, Muzaffargarh, Punjab. It is part of the reputable Mansha Group, which also has power companies like Pakgen Power Limited, Nishat Power Limited and Engen Private Limited as part of its portfolio. It was set up in 1994 with a gross capacity of 362MW. The company was incorporated in Pakistan under the Companies Ordinance, 1984 and was set up under the Energy Policy 1994; Nichimen Japan was hired for EPC contractor. The unit has been operating since November, 1997.
Shareholding pattern
The majority shareholders of LPL include over 18 percent stake by Engen Pvt. Limited, almost 29 percent by Nishat Mills Limited, and 7.2 percent by Adamjee Insurance Company Limited. Financial institutions including mutual funds together hold over 11 percent shares in the company, while the local public has around 7.5 percent shareholding. Breakup of the shareholding is shown in the illustration.
LPL historical performance
Lalpir Power Limited has been in operations since 1997. The company's financial performance has seen its ups and downs. From 2011-201, the power company registered an increase in revenues, but the subsequent years have witnessed a slide in the firm's top-line; revenues dropped by 30 percent year-on-year on average in 2015 and 2016.
Growth in profits has also been up and down. From an EPS of Rs 4.15 in 2011, the company has come down to an EPS of Rs 2.24 in 2015 where rise in furnace oil prices chipped away profits on account of a higher generation cost. Nonetheless, FO prices coupled with a higher load factor have also increased the top-line during these years.
However, post 2013, LPL's margins - be it gross or net - have continuously improved up till 2016. This improvement in margins can be explained via delta loss, which measures as grams per kWh fuel consumption. It can be seen that in years where delta loss is high, margins are lower, and vice versa. Net margin came down from 4.83 percent in 2011 to 1.76 percent in 2013. However, since then the company has managed to recover somewhat; its net margin has risen up to 3.85 percent in 2015 and then to 6.48 percent in 2016; these are the years where delta loss is minimal. It can be seen that even though revenue was lower in 2016 on a year-on-year basis, the company was able to earn a better profit margin in 2016 due to a decrease in the delta loss, which means lower fuel consumption per kWh generated.
Like many IPPs, LPL too has had issues with WAPDA, sole customer over payment of dues. In 2015, Rs 6.68 billion were outstanding out of which Rs 4.50 billion were classified overdue. The company has blamed this delay in payment for disruption in fuel supply, which in turn affects its generation performance. These issues have continued that has resulted in erratic fuel supply and hence the reduced capacity factor for LPL. In 2016 as well, the company continued to face adverse impact of circular debt and was owed Rs 8.6 billion as outstanding till 31 December, 2016 out of which Rs 4.24 billion were classified overdue.
LPL in 2017 and beyond
CY17 took a weird turn for LPL; where the revenues for the power company were seen to increase by 19 percent year-on-year, profits were down by two percent year-on-year - negating the trend in the previous years. Again, the key reason for decrease in the firm's profitability in 2017 was the increase in delta loss by Rs 194.158 million due to increase of 1.12 grams per kWh fuel consumption as per the Annual Report 2017. Again it was seen that higher delta loss generated dispatches and lower margins for the year. Lower utilization came from plant closure in October 2017 due to an outage and plant closure in November 2018 due to industry wide furnace oil plant shutdown.
While the revenues continued to decline in 1QCY18 as well, earnings for the latest quarter saw a rebound along with margins due to lower delta loss. The key reason for lower top-line was lower dispatches in the quarter, where the capacity factor remained 28 percent in 1QCY18 as against 46.3 percent in 1QCY17.
Latest update on payment issues remain the same; As on 31 March 2018, an amount of Rs 11.326 billion was outstanding against Central Power Purchasing Agency (Guarantee) Limited (CPPA-G); out of these Rs 2.125 billion were classified overdue.
Future prospects
Lalpir Power has historically been plagued with fuel losses. However, the company has managed to recover from its weak financial performance slightly and has planned to diversify into renewables, which is a good strategy in the long-term. In 2015, LPL had approved investment in the Lalpir Solar Power (Pvt) Limited (LPSL). The principal activity of LSPL will be to build, own, operate and maintain a solar power project having gross capacity up to 20MW which will be located near its oil power plant. The company is also undergoing a Productivity Enhancement and Performance Improvement (PEPI) program, which is expected to reduce fuel losses.
End of furnace oil is likely to be beneficial for LPL. Why? Considering LPL's lower position on Nepra's Merit Order List, furnace oil based power plants are likely to face capacity fall beyond 2020, which will reduce fuel losses for them.

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LPL: Pattern of Shareholding (as at Dec 31, 2017)

Category of Shareholders                                            Percentage

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Directors and their spouse(s),children                                   6.84%

Associated Companies, undertakings and related parties

NISHAT MILLS LIMITED                                                    28.80%

ADAMJEE INSURANCE COMPANY LIMITED                                        7.20%

SECURITY GENERAL INSURANCE COMPANY LIMITED                               1.80%

M/S. ENGEN (PRIVATE) LIMITED                                            18.17%

Public Sector Companies and Corporations                                 0.33%

Banks,DFIs,NBFC, Insurance,Takaful, Modarabas and Pension funds          6.99%

Mutual Funds                                                             3.87%

General Public

a. Local                                                                 7.46%

b. Foreign                                                                   -

Foreign Companies                                                        0.09%

Others                                                                  18.38%

Totals                                                                    100%

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