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The two largest independent power producers – Hub Power Company Limited (PSX: HUBC) and Kot Addu Power Company Limited (PSX: KAPCO) - have surprised the market with their better-than-expectation financial performance for the first quarter of FY20. HUBC has posted a growth of 86 percent year-on-year in its profits, while KAPCO’s earnings have increased by 84 percent year-on-year in 1QFY20.

Kot Addu Power Company Limited 
Rs(mn)  1QFY20 1QFY19 YoY
Sales       35,365       31,595 12%
Cost of sales       30,141       27,978 8%
Gross profit         5,224         3,617 44%
Administrative expenses            207            177 17%
Other operating expenses #DIV/0!
Other income         4,367         2,529 73%
Profit from operations         9,385         5,969 57%
Finance cost         2,292         2,099 9%
Profit before tax         7,093         3,871 83%
Taxation         2,060         1,130 82%
Profit after tax         5,033         2,741 84%
EPS (Rs) 5.72 3.11 84%
Gross marin 14.77% 11.45%
Net margin 14.23% 8.67%

 

Hub Power Company Limited (Consolidated) 
Rs(mn)  1QFY20 1QFY19 YoY
Turnover       14,081       17,989 -22%
Operating costs         6,590       13,151 -50%
Gross profit         7,491         4,838 55%
General and administration expenses            449            314 43%
Other income               68               51 34%
Other operating expenses               23                 1 1986%
Profit from operations         7,088         4,574 55%
Finance costs         3,059         1,322 131%
Share of profit/(loss) from associates         1,873             (61)
Profit for the period         5,823         3,124 86%
EPS (Rs/share)           4.29           2.47 74%
Owners of holding company         5,568         2,960 88%
Non controlling interest            255            164 56%
        5,823         3,124 86%
Gross margin 53.2% 26.9%
Net margin 41.4% 17.4%
Source: PSX 

KAPCO’s growth in the bottomline starts from the top. the firm’s revenues have seen an increase of over 12 percent year-on-year primarily due to better utilization factors because of increase in the power generation from furnace oil in September 2019 that has otherwise remained subdued due to phasing out of the expensive fuel. At the same time, lower cost of sales due to currency depreciation helped the company improve its gross margins. Higher other income and contained finance cost also lifted the bottomline.

On the other hand, HUBC witnessed a decline in its consolidated revenues, which was due to lower power generation at its base plant at Hub. Lower load factor of the main plant at Hub also meant lower operating costs, which along with currency depreciation was the main factor behind better gross profit in 1QFY20. The company’s consolidated earnings growth was also assisted by the share of profits from China Power Hub Generation Company, that commissioned the 2x660MW coal power plants in August. HUBC’s consolidated earnings were impacted by twice the increase in finance cost due to the increase in financing the capex.  This is also why the IPP did not announce a cash dividend for 1QFY20.