Despite the decline in revenues, NCPL’s gross profit increased by 30 percent year-on-year in 1HFY20 due to operations and maintenance savings - visible in lower cost of sales over the period. NCPL has been incurring lower O&M costs as the plant is in its initial years of operations (COD in 2010).

However, over 90 percent growth in finance cost weighed heavy on the bottomline; NCPL’s receivables have been mounting due to circular debt; as of December 31, 2019, total receivables from the power purchase stood at Rs19.55 billion, out of which Rs16.43 billion were overdue.

NCPL’s net margins improved significantly due to rising profits amid falling revenues. However, where FY20 might continue to provide cushion to NCPL, the company should brace for a slide in earning in FY21 and beyond. First, the O&M costs will start rising in the coming years as the plant ages and requires higher maintenance; so far NCPL is benefiting from O&M savings in the early years of the project’s life as the O&M cost component in tariff is levelized over 25-year period according to the annual report.

And secondly, NCPL receives principal payment under a 10-year long term loan as part of the revenue from power purchaser starting from the commercial operation date (COD) in July 2010, which has inflated the IPPs profits. The 10-year period comes to an end in July 2020, following which there will be a marked fall in profits in FY21 and beyond. In the current period, PAT of Rs2.1 billion includes Rs1.3 billion in respect of long term loan repayment. NCPL has not been paying dividends for some time and given the likelihood of a squeeze in profits going forward, dividend prospects are not bright either.