Electric Company: HUB POWER COMPANY LIMITED - Analysis of Financial Statements fiscal year 2002 - fiscal year 2006
It is a large private sector power company and its 1200mw plant is located 60-km from Karachi. It is located at Hub, district Lasbela, Balochistan. The company generates electricity by four 323mw oil-fired units that are supplied by a 78-km long pipeline from Pakistan State Oil.
The Hub is the first largest power station being financed by the private sector in Southern Asia and one of the largest private power projects in Pakistan. It was the first project which was co-financed by several governments, the World Bank as well as international private sector lenders and investors. It sets the standards for formulation a private power framework in Pakistan, which has elicited numerous responses from international investors. The company is listed on Karachi, Lahore, Islamabad and Luxembourg stock exchanges and has over 17,000 Pakistani and international shareholders. The principal activities of the company are to own, operate and maintain an oil-fired power station with a net capacity of 1200mw located at the Hub River estuary in Balochistan. Its sole customer is Wapda. In order to maintain high efficiency and availability, the company continues to allocate funds on various projects. While the major overhaul of two units has been successfully completed, the third unit is planned for future needs of the country.
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9 months ended 9 months ended
March 2007 March 2006
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Turnover 29,954,479 16,138,977
Operating costs (26,849,083) (12,868,711)
GROSS PROFIT 3,105,396 3,270,266
Expenses (189,324) (222,172)
Financing costs (1,045,315) (1,197,130)
NET PROFIT 2,023,523 2,059,601
earning per share 1.75 1.78
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Recent Results:
During the third quarter of 2007, the power plant generated 1,803GWh of electricity resulting in a load factor of 70%. In the same period maintenance activities were successfully completed on Unit No 1 and the Annual Dependable Capacity Test of the plant was carried out satisfactorily which continues to secure full contracted capacity payments from Wapda.
Turnover for the quarter was Rs 10,228 million (2006: Rs 6,360 million) and operating costs were Rs 9,105 million (2006: Rs 5198 million). The company earned a net profit of Rs 775 million, resulting in earnings per share of Rs 0.67, as compared to a net profit of Rs 793 million and earnings per share of Rs 0.69 in the corresponding quarter last year.
Hubco's current ratio is greater than one in all years under consideration. Although the company didn't perform well in its initial years but picked up momentum in later years, outpacing its competitors. The current ratio increased enormously in FY05 due to a sharp decrease in the current liabilities by almost 50%. The sharp upturn in current ratio is the testimony of the increasingly high efficiency of the company in terms of paying off its debt obligations. Hubco paid off significant amount of long-term loan in FY04 onwards, allocating more current assets for per unit of current liability.
The company has been able to capitalize on its increasingly high load factor and high capacity. In addition to this, it has remained a consistent high performer in the industry. The manifestation of efficiency amidst the competitive industrial and economic scenario can be seen in net profit and gross profit margin trends. However, the down turn in the trend is attributable to the uncontrollable risks such as interest rate risk, price risks etc.
Net profit as well as net profit margin and gross profit margin declined in FY05 mainly due to generating units' outage resulting in liquidated damages and deductibles under the plane insurance and lower tariff profile partially offset by the higher interest income. Also, operating costs were higher in the same year due to increased load factor.
Financing costs declined 18.7% in FY05 to Rs 1.8bn from Rs 2.2bn in FY04, as the company fully retired its senior debt of Rs 23.9bn in Jul'05. In FY06, the energy output increased substantially owing to high load factor in the subsequent years and operation and maintenance of the power plant as per international standards.
Increased demand of power also fuelled better sales revenue and the company dispatched 3930 GWhs of electricity corresponding to the load factor of 37%. However, all the profitability ratios declined owing to reduction in the tariff after full repayment of senior debt in July 2005. However, the company still fared better than the industry.
ROA and ROE also declined after posting a high trend in FY04. It can be attributed to the declining net income trend of the company. In terms of asset utilization and equity consumption Hubco lags behind the industry.
Hubco's major financing comes through the acquisition of long-term debt. The company continues to allocate funds on various projects such as upgradation, procurement of parts etc. However, a striking feature of the company is the efficient payment of the loan.
This along with the rising equity has kept the long-term debt to equity ratio fairly low. In fact all the debt ratios have been showing a decreasing trend over the years owing to the same reason. Interest paying ability has shown an upward trend until recently in consequent of lower operating profit (after the full repayment of senior debt in 2005), which consequently depressed the TIE ratio for Hubco. In general, the company is not as leveraged as other companies of the industry.
Soaring demand for electricity along with expansion has enabled the company to post a healthy inventory turnover ratio trend. The operating cycle is erratic and mainly led by wavering trend of DSO. This means that the company takes a long time in recovering its receivables.
Sales and net income of the company have augmented over the years, resulting in higher total asset turnover ratio of the company. Following the rising power demand and better incentives in the Budget 2007-08, the company will be able to capitalize its efficiency in augmenting its overall asset management ability. Sales-to-equity ratio posted an increasing trend mainly on account of high sales revenue backed by increasing demand of electricity. Lately, it is well below the industry average trend.
The net worth of the company in absolute terms is lower than the industry. Relatively less number of subscribers enjoy large share in the company's stockholder equity. EPS posted an erratic trend and has declined owing to low net income of Hubco. Despite this, the DPS of the company has increased over the years. In general, Hubco is not as commendable as its competitors in terms of its marketability.
OUTLOOK:
The impact of the budget 07-08 will be positive in the long term since the government has announced mega projects namely construction of Neelum Jehlum Dam, Bhasha-Diamer Dam. At present, some mega projects are underway. The successful completion of these projects will help overcome the power shortages. Out of total PSDP allocation, power sector will get Rs 84 billion. An amount of Rs 73 billion outside the PSDP has been allocated to the sector. Moreover, reduction of customs duty from 40% to 35% has been proposed on industrial diesel power generating units. New power policy will be announced soon. This would have an augmented effect on the company's financials. Plans have also been made to accelerate the exploration of indigenous coal while the import of coal in the short run for the power sector will be encouraged. An allocation of Rs 60 billion including foreign aid of Rs 30 billion has been made for the power sector for 2007-08.
One more favorable step announced in the budget is the subsidy of Rs 98 billion to WAPDA and KESC to improve their financial health. This positively effects the power sector as well as the Hubco as in the previous years cash flow problems of WAPDA and KESC tended to spillover onto power producers. Hence the payment of dues by WAPDA to Hubco will reflect positively on the company's financials.
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KEY FINANCIAL DATA
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Income Statement (Rs '000) Dec'02 Dec'03 Dec'04 Dec'05 Dec'06
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Total Revenue 21,367,251 19,513,668 16,002,782 16,978,466 27,911,386
Cost of Goods Sold 11,538,638 11,022,007 8,106,637 9,821,498 23,553,045
General & Administrative Expense 216,576 213,666 230,628 194,244 280,729
Operating Profit (EBIT) 10,535,012 8,728,061 7,686,127 7,193,691 4,345,933
Financial Charges 3,248,565 2,626,275 2,223,163 1,808,242 1,557,496
Net Income 7,286,447 6,101,786 5,462,964 5,385,449 2,788,437
Balance Sheet (Rs'000) Dec'02 Dec'03 Dec'04 Dec'05 Dec'06
Stores & Spares 521,657 521,657 543,782 562,680 592,486
Cash & Bank Balances 9,196,318 6,478,098 5,803,750 6,038,136 3,363,306
Total Current Assets 17,496,975 12,945,880 12,472,945 10,971,232 9,593,915
Total Non Current Assets 46,068,421 42,600,126 39,307,630 35,664,503 33,921,477
Total Assets 63,565,396 55,546,006 51,780,575 46,635,735 43,515,392
Total Current Liabilities 13,426,159 10,833,770 8,894,489 4,729,730 4,264,980
Long Term Liabilities 23,961,796 18,681,642 13,243,975 10,234,193 9,265,207
Total Liabilities 37,387,955 29,515,412 22,138,464 14,963,923 13,530,187
Share Capital 11,571,544 11,571,544 11,571,544 11,571,544 11,571,544
Total Equity 26,177,441 26,030,594 29,642,111 31,671,812 29,985,205
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LIQUIDITY RATIO Dec'02 Dec'03 Dec'04 Dec'05 Dec'06
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Current Ratio 1.30 1.19 1.40 2.32 2.25
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ASSET MANAGEMENT Dec'02 Dec'03 Dec'04 Dec'05 Dec'06
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Inventory Turnover (Days) 8.79 9.62 12.23 11.93 7.64
Day Sales Outstanding (Days) 59.03 32.23 42.30 30.62 37.90
Operating Cycle (Days) 67.82 41.85 54.53 42.55 45.54
Total Asset turnover 0.34 0.35 0.31 0.36 0.64
Sales/Equity 0.82 0.75 0.54 0.54 0.93
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DEBT MANAGEMENT Dec'02 Dec'03 Dec'04 Dec'05 Dec'06
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Debt to Asset (%) 58.82 53.14 42.75 32.09 31.09
Debt/Equity (Times) 2.43 2.13 1.75 1.47 1.45
Times Interest Earned (Times) 3.24 3.32 3.46 3.98 2.79
Long Term Debt to Equity (%) 91.54 71.77 44.68 32.31 30.90
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PROFITABILITY (%) Dec'02 Dec'03 Dec'04 Dec'05 Dec'06
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Gross Profit Margin 46.00 43.52 49.34 42.15 15.61
Net Profit Margin 34.10 31.27 34.14 31.72 9.99
Return on Asset 11.46 10.99 10.55 11.55 6.41
Return on Common Equity 27.83 23.44 18.43 17.00 9.30
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PER SHARE Dec'02 Dec'03 Dec'04 Dec'05 Dec'06
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Earning per share 6.30 5.27 4.72 4.65 2.39
Price earning ratio 4.52 7.57 7.29 6.25 10.29
Dividend per share 7.89 6.89 3.70 2.90 3.84
Book value 22.62 22.50 24.02 24.37 25.91
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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