Baqar HussainAzee Securities (Pvt) Ltd.
Kot Addu Power Company Limited (KAPCO) announced its first quarter results for the period ended September 30, 2015 according to which the profit after tax was accumulated Rs 2.1 billion, which is 12.6% lesser than Rs 2.4 billion that it achieved during the same period last year. The decline was caused due to lower penal income and higher repair & maintenance cost. The earnings per share were resulted in Rs 2.39/share vis-à- vis Rs 2.74/share.
Top line fall by 38%
Net sales of the company decrease by 38% YoY to Rs 21.98 billion as against Rs 35.21 billion same period last year mainly due to lower generation. The net output from the plant was 1,953 GWh of electricity (1QFY15: 2,177 GWh), resulting in a load factor of 65.8% (1QFY15: 73.3%) and an overall commercial availability of 96.3%. During the quarter, operating costs witnessed a decline of 40%YoY to Rs 18.93 billion as compared to Rs 31.30 billion in the same period last year. Finance cost also witnessed massive decline by 55%YoY to Rs 0.84 billion in 1QFY16 from Rs 1.88 billion in 1QFY15 as a result of lower mark-up rate.
Receivables surging
Total receivables from Water and Power Development Authority (WAPDA) amounted to Rs 68.8 billion, for which the company is constantly follow the off-taker as well as the concerned government ministries for the settlement of outstanding. On the other hand, WAPDA continued to raise invoices related to liquidated-damages for Kapco’s failure to dispatch due to fuel oil shortage that was caused by the off-taker’s payment defaults. Total invoiced value so far accumulated to Rs 27.9 billion for the period 2008-09 to 2014-15.
Government plan of share divestment
The government plans to divest its shareholding in KAPCO as its Power Purchase Agreement is set to expire in 2021. Its assumed that favorable terms for PPA extension along with the divestment will unlock the value. Furthermore, company is currently evaluating feasibility of 660MW coal based power plant with an estimated cost of US$ 1billion.
Recommendation
Company is currently trading at Rs 83.66/share, reflecting an upside potential of 7.5% against our June 2016 target price of Rs 90/share.
Syed Zaki Hussain
