K-Electric Limited (KEL) 1QFY16 results – a lot more than meets the Eye

By: JS Global Capital Limited

 

We reiterate our ‘Buy’ rating on K-Electric Limited (KEL) post yesterday’s betterthan-expected 1QFY16 earnings announcement. We flag 80% potential upside to our revised Target Price of Rs13.5 as we lift our earnings estimates by 4-7% over FY16E-18F.

While headline earnings overshot ours and street estimate by ~20%, we believe significant uptick in core profitability (not completely visible in headline EPS) is massively heartening.

In 1QFY16, KEL’s PBT is +117% YoY and +47% QoQ vis-à-vis +108% YoY and -46% QoQ growth in PAT.

Gross Profit is up 46% YoY and 25% QoQ, led by (1) pick-up in demand, (2) drop in T&D losses and (3) improvement in fleet efficiency fueled by the commissioning of KCCPP in March 2015.

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As per our discussion with the management, significant breakthrough has been achieved with regards to finalization of coal-conversion tariff. NEPRA has reached a decision, and tariff is expected to be announced over the next two to three weeks.