HUBC – diversification paying well

Growth projects undertaken by the Hub Power Company Limited’s (PSX: HUBC) have been key factors for the IPPs current as well as future profitability. These projects have been benefitting the company in terms of diversification in times when the simple, old oil or gas-powered power stations started losing steam. First are the coal investments that have been driving profitability since FY20 when HUBC’s associated company - China Power Hub Generation Company commenced generation from 1320MW coal-fired power plant in August 2019. The power company’s earnings have been growing and the share of profits from associates has been key in lifting HUBC’s profits.

Then there have been Thar Energy Limited and ThalNova projects that are expected to reach commercial operation in late FY22. And it doesn’t end here; the company is looking to explore opportunities in areas including water, renewable energy, upstream oil & gas, mining and infrastructure. In FY21, HUBC’s another diversifying act has been its wholly owned subsidiary - Hub Power Holdings Limited (HPHL) signing an agreement with ENI’s local employees to acquire all upstream operations of ENI Pakistan and their renewable energy assets owned in Pakistan.

In FY21, HUBC’s performance also reflects some of these strategic decisions. HUBC’s consolidated turnover in FY21 was up by 13 percent year-on-year. Growth in revenues for HUBC on the whole came from close to 40 percent rise witnessed in power dispatches on a year-on-year basis. This meant that the IPP recorded better plant(s) utilization levels. Compared to FY20, load factor for Hub plant was 1.8 percent versus 0.3 percent in FY20, while that of Narowal and Laraib plants were 26 and 63 percent versus 18 and 52 percent respectively in FY20. Load factor for CPHGC was also highest in FY21 at 72 percent versus 58 percent in FY20.

While there was a rise seen in cost of sales that increases along with increased load factors and utilization of plants and hence restricts GP growth, the consolidated earnings benefited from the rise in earnings from the share of profit from China Power Hub Generation Company (CPHGC), lower finance cost in FY21, and absence Rs1 billion transfers of share of 1.5 percent stake in CPHGC to Government of Balochistan in FY20. The rise in share of profits from CPHGC was 13 percent, while the fall in finance cost was 38 percent year-on-year due to lower interest rates. HUBC’s consolidated earnings for FY21 rose by 34 percent year-on-year.

The company also paid a final dividend of Rs5 per share in addition to Rs7 interim dividend already paid. One reason for the payouts a better liquidity, which were missing in the previous years was due to the agreement signed with governemnt.