Hub Power Company

The Hub Power Company (Hubco) announced its full year financial results for FY11 registering meagre profitability growth without much surprise. The only major surprise was a positive one, as the company doled out a final dividend of Rs3/share, taking the full year dividends to Rs5.5/share, highlighting the fact the company is relatively at ease shielding itself from the circular debt woes.
The company generated 8,337 Gwh (77 percent load factor) of electricity during the period; three percent lower compared to the same period of the previous year, yet the top line grew considerably. Revenues have increased mainly on the back of increase in furnace oil prices and the exchange rate indexation factor. Moreover, the addition of Narowal project in the final quarter for FY11 also strengthened the top line.
The commendable top line performance was overshadowed by a massive increase in financial charges that limited the earnings upside to just one percent year-on-year. The staggering increase in financial charges was primarily due to interest expense on the hydel expansion project of Laraib Energy that was expensed in the income statement during the 1QFY11.
Furthermore, post commissioning of the Narowal project, the financial charges pertaining to the project are expected to have contributed significantly towards the escalated finance cost.
The 213 MW Narowal project is expected to have stayed in losses after a year-long delay in its planned commissioning. That said, the losses on Narowal will likely be reversed as early as 1QFY12, when the pending post COD tariff determination gets the nod of approval from Nepra.
On the circular debt front, the company does seem to have the leverage of passing on the impact of delayed payments from its buyer Wapda to its supplier, PSO. The circular debt may not have had a direct impact on the companys earnings but it did hurt the plant operations as the fuel supply was often interrupted on account of late or non-payment to PSO.
FY12 is expected to provide a healthier top line to the company. Besides, having additional capacity, analysts following the industry expect the tariff based PCE to be higher by eight percent year-on-year, whereas rupee depreciation and US CPI is likely to augment indexation factor by 10-14 percent.
The company has been able to manage its liquidity efficiently and the dividends are expected to keep flowing in the future. Little wonder that the company is often tipped as the est pick in the market.

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HUB POWER COMPANY LTD

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(Rs mn)                   FY11     FY10     chg

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Turnover               123,310   99,694     24%

Operating costs        114,093   92,006     24%

Gross profit             9,217    7,688     20%

Gross margin               7.5%     7.7%    -3%

Other income                47       67    -30%

Finance cost             3,166    1,801     76%

PAT                      5,546    5,469      1%

EPS (Rs)                  4.81     4.74

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