Quite a few changes have occurred since Kot Addu Power Company Limited (PSX: KAPCO) announced its financial performance for the first quarter of FY18. First, an important development at that time was KAPCO’s bid for acquisition of a 17.4 percent stake in the Hub Power Company Limited (PSX: HUBC) where around 14.9 percent of the stake was to be divested by Dawood Hercules group while the remainder was being offered by other shareholders. However, the deal with KAPCO got suspended later.

Second change for the company in these times has been the sudden closure of RFO based power plants. The company has a multi-fuel plant, and is likely to operate mostly on RLNG going forward. In such a case, the IPP will see a change in its revenue mix as RFO based generation will continue to fall for the company, which may not adversely affect KAPCO’s profitability as such as the plant is fuel ‘inefficient’ and therefore benefits if utilisation levels fall, as highlighted by Elixir Securities.

A third change in stance for KAPCO is the minimal chances of its Power Purchase Agreement (PPA) being renewed. Its PPA is expiring in FY21, and previously there were hopes that it will be renewed in time. However, with additional capacities being added as well as expected to come online going forward, there is little need for renewing and continuing an inefficient plant as it will further deteriorate utilisations.

Amid these winds of change, KAPCO announced its 1HFY18 financial performance on the bourse last week with the board of directors recommending an interim cash dividend of Rs4.35 per share for 2QFY18. The IPP’s earnings for 1HFY18 were up by 5.4 percent, year-on-year, while the top line was up by 22 percent, year-on-year.

The increase in sales for 1HFY18 came from around 20 percent year-on-year rise in furnace oil prices and higher load factor of about 58 percent year-on-year along with rupee depreciation compared to 1HFY17. However, higher prices of furnace oil also chipped away at the gross margins where cost of sales grew more than proportionally. KAPCO’s earnings in 1HFY18 benefited from higher other income, which came from higher receivables outstanding with the power purchaser.

However, finance cost on account of higher bank borrowings controlled the earnings growth in 1HFY18.