Kot Addu Power Company Limited (PSX: KAPCO) has shown significant underperformance relative to the market over the past year. The IPP’s financial performance in FY17 as announced yesterday on the bourse also show no significant jump in the year-on-year profits.

However, the firm has been able to extend its top line robustly in FY17 – up by 28 percent year-on-year. This increase in the top line came from improvement in generation levels in a rising input cost environment. During the period, the furnace oil prices were up by around 28 percent year-on-year, whereas RLNG prices were higher by 22 percent.

The IPP’s consumption of furnace oil has come down due to the availability of RLNG to the power plant. During the fiscal year, KAPCO showed improvement in capacity utilisation too, which is expected to stand at around 62 percent versus 55-56 percent in FY16.

Despite higher sales, the disproportionate increase in cost of sales squeezed the gross margins, while the net margins too took a beating due to high finance cost and other operating expenses. However, lower administrative expenses and a boost in other income (representing penal income) supported the decline in the bottom line. During FY17, KAPCO’s earnings grew slowly by four percent year-on-year.

The power company’s privatization plans have hit a snag. The company also recently demonstrated its intent to acquire 17.37 percent strategic stake in Hub Power Company Limited – an acquisition of 201.01 million share, which along with the likelihood of a reduction in the upcoming dividends could also increase finance cost as the market expects the acquisition to be financed largely with debt. KAPCO announced a final dividend of Rs4.75 per share taking the full year payout to Rs9.05 per share.