PSO announced higher than expected 1QFY14 EPS of Rs31.57, up83% compared to EPS Rs17.28.
Earnings remained higher due to higher other income which is recoded at Rs10bn compared to Rs1bn last year.
Though we await detailed accounts, we believe the major chunk of the other income may include interest on delayed funds (related to circular debt). Besides, other income also includes interest on government securities (PIBs). The company as per June 2013 accounts has PIBs of Rs46bn which the company received in lieu of settlement of circular debt.
On the flip side, higher exchange losses due to Pak rupee devaluation versus the dollar led operating expenses increased by 130% to Rs6.4bn which dragged earnings.
Moreover, despite settlement of circular debt, finance cost increased by 8% to Rs3.1bn. This means that after the circular debt settlement in June 2013, company receivables have increased significantly which led to increase in borrowing from banks which is close to the levels we saw last year.