Dawood Lawrencepur Limited (PSX: DLL) was established in 2004 as public limited company as a result of an amalgamation between Dawood Cotton Mills Limited (DCM), Dilon Limited (DL), Burewala Textile Mills Limited (BTM), and Lawrencepur Woolen and Textile Mills Limited (LWTM).
The company is in the business of trading and marketing renewable energy solutions to commercial and industrial consumers, apart from its textile business. It entered into the energy sector when it acquired a wind power project in 2008.
A major part of the entire shareholding is held by the associated companies, undertakings and related parties- at around 66 percent. Of this, Dawood Corporation (Pvt) Limited holds 74 percent of the shares. A little over 21 percent is with the residents, general public while the directors, CEO, their spouses and minor children hold a small 3 percent. The remaining 10 percent is distributed between the rest of the categories.
Historical operational performance
Dawood Lawrencepur Limited has more often than not relied on income from other sources; since CY15, it has earned significant amounts in dividend which keeps the profitability intact.
Having entered the energy sector, the company has two subsidiary companies that take care of its wind and solar businesses. While Tenaga Generasi Limited is to construct a wind energy project, Reon Energy Limited is to design and construct solar projects. With its licensing arrangement, the company continues to earn royalty income for its Lawrencepur brand, whereas it sold the land from its shut down of two textile units, Dawood Cotton Mill and Dilon Limited during CY15. The company wanted to utilize its savings into the renewable energy sector. The textile segment during CY15 contributed lesser revenue as the company undertook contraction there, while sales from renewable energy segment picked up. Dividend income from Dawood Hercules Corporation Limited brought the company out of its negative operating profit figure.
During CY16, the company managed to complete its process of transferring the renewable energy business to a wholly owned subsidiary namely Reon Energy Limited. The latter has received contracts as well. The wind power project was also completed and commenced operations by October 2016, as planned. With transfer of business to another entity, the company started to see a gradual decline in its topline, with textile units being shut. Income from sale of disposal of land and dividend income from associated company kept the earnigns in the green.
Inclination towards building renewable energy is slowly gaining traction as not only the developed world but the developing countries are also starting to move towards renewable energy sources with India adding 100,000 MW of solar and 60,000 MW of wind energy to its total energy mix. There options are not only operating without fuel but are also less costly to operate and maintain. On the other hand, during CY17, the company, which had already closed down its textile units, also decided to dispose “Lawrencepur” brand, to direct the proceeds from the disposal towards renewable energy and other related businesses. The topline as discussed before had been on a decline due to transfer of business whereas net margin reduced in the year due to a significant decline in dividend income.
While the decision to dispose “Lawrencepur” brand was approved, the sale deal could not be finalized during CY18. The figures recorded in the topline are mostly for the renewable energy projects that are in progress whereas all other projects are reported in the accounts of the subsidiary company. With most other figures remaining unchanged, the doubled dividend income increased net margin unprecedentedly.
The energy prices on the rise in the country meant good business for Reon Energy Limited with CY19 being its first profitable year. The company secured several orders from large scale customers; moreover, the demand for a cheaper alternative could not be denied which further aided the profitability of Reon Energy. On a standalone basis, the topline of Dawood Lawrencepur went further down as its principal activity is to manage investment in subsidiaries and associated companies. With Reon Energy standing as a separate entity, the topline of Dawood Lawrencepur stood at a petty Rs 6 million, with dividend income aiding profitability.
Quarterly results and future outlook
The first quarter of CY20 saw topline going further down at barely Rs1 million, while costs mostly pertained to administrative reasons. Another component of costs was the finance costs which were largely governed by mark up on running finance obtained since CY14. Other income, as seen before, provided support, however, it still could not cover expenses, with the company eventually posting a loss of Rs1.7 million.
The benefits regarding the renewable energy cannot be denied. The federal government, in its draft Renewable Energy Policy, aims to “increase contribution from renewable sources to 30 percent of the installed capacity by 2030”. This evidently implies a major change in priorities, but its details and implementation plans are yet to be seen. On the other hand, the wind power sector is still impacted by the circular debt.