Energy: KOHINOOR ENERGY LIMITED - Analysis of Financial Statements June 2002-June 2008
Kohinoor Energy Limited (KEL) was incorporated in 1994. It is listed on all the three stock exchanges of the country. KEL is one of the Independent Power Producers (IPPs) operating in Pakistan. Its principal activity is to operate, generate and maintain a furnace oil power station with a net capacity of 124 megawatts, whereas the gross capacity is around 131.44 MW.
The main buyer of KEL's electricity is WAPDA. Its plant is situated at Link Manga Raiwind Road Lahore.Due to increased electricity demand, the power complex continuously ran at higher dispatch levels. KEL dispatched around 881,894 MWH electricity in FY08 while last year the total dispatch was at 805,527 MWH. The capacity factor of the power complex was at 81.19% in FY08 as against 74.16% in the last year.
At the turn of the current year the average per capita power consumption of the world is around 2,596 KWh. Pakistan's per capita electricity consumption is about 456KWh, which is 41% lower than that of Asia. If the power consumption of Pakistan grows in line with the Asian growth figure then the consumption would need to grow at 7.21% CAGR each year given that the Asian average remains constant at 646KWh.
The electricity demand in Pakistan has grown over 5-6% on a year-on-year (YoY) basis for the period FY03-08, which is almost in line with the GDP growth rate. Regulatory bodies indicate a demand-supply deficit of 1457MW during FY07 whereas the actual figure is as high as 2500MW.
In FY08, the overdue amount from Wapda amounted to Rs 1,158 million from Rs 626 million in FY07. The trade debts are secured by a guarantee from the GoP under the Implementation Agreement. These are in the normal course of business and interest free, however, a penal mark-up of six months treasury bill plus 2% is charged in case the amounts are not paid in due dates. Apart from the credit crunch faced by all power sector companies because of extreme illiquid position of Discos and Wapda, the liquidity position of KEL is much better in FY08 as against last year.
The current ratio increased from 3.13 in FY07 to 3.5 in FY08 even though inventory levels fell by 9.33% in FY08 as against FY07. Profit margin fell from 16% in FY07 to 9% in FY08. This was mainly because of the rise in cost of sales. Although sales increased by 38.5% in FY08 on a YoY basis though the cost of sales increased by 53.86% in FY08 as compared to the last year's cost of sales figure. Return on assets also fell from 12% in FY07 to 9% in FY08.
The reason for such decline was that PAT (profit after tax) fell by 21.75% in FY08 on a YoY basis. The lower profitability was mainly due to a phenomenal increase of 58.3% in raw material costs in FY08 on a YoY basis. Now because raw material constitutes around 90% of the total cost of sales an increase in the expenditure of raw material was supposed to have a huge impact, as was the case.
The profitability was lower, because the company's entitlement to a premium for a period of ten years ended in June 2007, secondly the decline in pre-structured power tariff and spending on major maintenance of engines are also the main reasons of the decline. DSO (days sales outstanding) continues to show an upward trend since 2006-07 mainly because of delay in payments by Wapda. As already discussed that the Discos credit crunch has hurt all the related sectors especially the IPPs.
As a result, the operating cycle has also lengthened to 119 days in FY08 as against FY07. The sales to equity ratio has consistently risen over the analysed period because the authorised and paid up capital have remained the same, the only rise in the equity section is in appropriated profits which are a sub-part of the rise in sales. Sales to equity ratio increased from 0.84 in FY07 to 1.12 in FY08.
Total debt to total asset ratio fell from 12% in FY07 to 10.78% in FY08. This was mainly because the company paid off its senior debts that were secured from ABN Amro Bank and International Finance Corporation (IFC, USA). Subsequently long-term to asset also decreased to a negligible level of 0.12% in FY08 on a YoY basis.
Although the financial cost reduced by 15.68% in FY08 as against FY07 figure though an important factor was a rise around 105% in the interest paid on finances under the mark-up arrangements. This is in relation to the credit crunch faced by the IPPs because of non-payments from Wapda. The times-interest earned ratio decreased to 8.82 in FY08 from 9.44 in FY07 because of lower profits from operations.
EPS has decreased from Rs 4.94 in FY07 to Rs 3.86 in FY08 because of lower profits. Book value per share steadily increased for the past six years due to rise in unappropriated profits. In FY08, unappropriated profits increased from Rs 4.6 billion of FY07 to 4.8 billion. The price earnings ratio didn't perform well due to crash in stock market during late 2007 and early 2008.
FUTURE OUTLOOK
Unless the government comes up with a plan to devise the tariff structure of electricity distributing companies such as Wapda and KESC we can't expect the circular debt issue to resolve. The government needs to improve the electricity distribution channels, transmission centres, hubs and all other related infrastructure to improve the situation for both the users and the suppliers.
The IPPs currently are on a lifeline from the government in terms of liquidity situation. These producers need cash not for only their day to day activities but also for future expansion plan.
Pakistan's rapid economic growth in the past five years clearly shows the potential that the country has in terms of electricity use. Secondly, the growing population will ensure an increase in the domestic use of electricity, therefore, as far as the demand side is concerned, there is plenty room for suppliers to manoeuvre and enhance their capacities, especially the small power producers like Kohinoor Energy.
It is expected that the company would face liquidity crunch at least in next two years, though at the same time we expect that demand would rise steadily even though industrial demand might grow by a less percentage as compared with the last five-year figures.
Because the GoP provided guarantees on power purchase agreements and fuel supply arrangements, it is viable for investors to invest in Pakistan's power sector. Secondly to cover the exchange rate variation risk, various tariff components are indexed for variation in Pak rupee and US$ exchange rates. This sector provides a perfect tool for investors to hedge exchange rate risk.
===================================================================================================================================
KOHINOOR ENERGY FINANCIALS
===================================================================================================================================
INCOME STATEMENT
===================================================================================================================================
2002 2003 2004 2005 2006 2007 2008
===================================================================================================================================
Sales 2,129,375 2,397,091 2,335,476 2,918,583 4,984,208 5,333,106 7,387,857
-
Cost of sales 967,771 1,358,062 1,264,170 1,879,009 3,749,585 4,180,586 6,432,159
Gross profit 1,161,604 1,039,029 1,071,306 1,039,574 1,234,623 1,152,520 955,698
Administration & general expenses 68,166 110,952 108,484 107,120 128,497 230,159 -232,198
Operating profit/other income 1,093,438 928,077 962,822 42,331 45,195 21,405 20,500
Operating profit & other income 1,178,147 967,313 1,009,171 974,785 1,151,321 943,766 744,000
Finance costs 330,766 253,964 181,150 161,476 128,262 99,984 -84,307
Profit before taxation 847,381 713,349 828,021 813,309 1,023,059 843,782 659,693
Taxation / provision for taxation 18,442 12,650 6,292 7,900 9,800 7,100 -5,000
Profit after taxation 828,939 700,699 821,729 805,409 1,013,259 836,682 654,693
Earnings per share 4.89 4.13 4.85 4.75 5.98 4.94 3.86
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
-----------------------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
NON-CURRENT ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
property, plant, & equipment 5,489,886 5,164,693 4,971,587 4,799,639 4,666,324 4,722,146 4,537,937
Intangible assets - - - 5,661 4,331 6,041 4,545
capital work-in-progress 1,305 9,105 20,898 18,328 11,330 67,959 55,210
Long term loans & deposits 4,780 5,084 4,476 4,350 4,898 4,831 10,360
Total fixed assets 5,495,971 5,178,882 4,996,961 4,827,978 4,686,883 4,800,977 4,608,052
CURRENT ASSETS
Stores, spares, & loose tools 187,199 177,551 203,822 285,179 319,578 307,228 382,892
Stock in trade 87,752 120,045 121,076 130,725 144,637 209,416 85,560
inventory 274,951 297,596 324,898 415,904 464,215 516,644 468,452
Current assets-Inventory* 2,108,596 1,665,523 1,532,684 1,527,618 1,581,662 1,875,343
Trade debt 725,284 211,589 280,563 394,102 561,530 1,155,394 1,939,815
Advances, deposits & other
receivables 174,351 220,769 185,357 260,150 391,218 321,997 197,757
Cash & check balances 1,208,961 1,233,165 1,066,764 873,366 628,914 397,952 139,298
Total current assets 2,383,547 1,963,119 1,857,582 1,943,522 2,045,877 2,391,987 2,745,322
Total Assets 7,879,518 7,142,001 6,854,543 6,771,500 6,732,760 7,192,964 7,353,374
-----------------------------------------------------------------------------------------------------------------------------------
EQUITY & LIABILITIES
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL & RESERVES
-----------------------------------------------------------------------------------------------------------------------------------
Authorized ordinary shares/rs. 10 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000
Issued, paid-up/ordinary shares: Rs 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586
Unappropriated profits 2,152,026 2,344,349 2,742,431 3,124,194 3,798,535 4,635,217 4,866,263
Reserve for bonus shares - - - - -
Total equity 3,846,612 4,038,935 4,437,017 4,818,780 5,493,121 6,329,803 6,560,849
NON-CURRENT LIABILITIES
Long term loans( secured/unsecured) 2,758,367 2,023,242 1,411,778 805,885 286,965 96,051
Staff retirement benefit/Deferred
liability 7,770 14,639 21,678 3,519 2,986 4,030 8,795
Total non-current liabilities 2,766,137 2,037,881 1,433,456 809,404 289,951 100,081 8,795
-----------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
-----------------------------------------------------------------------------------------------------------------------------------
Finances under mark up arrangements
- secured 0 0 0 0 0 360,000 470,608
Current portion of long term loans 790,133 621,867 626,485 642,912 525,246 192,102 108,097
Creditors, accrued &
other liabilities 411,580 113,866 107,944 413,402 329,314 113,728 107,755
Provision for taxation 65,056 75,264 80,182 87,002 95,128 97,250 97,270
Proposed dividend - 254,188 169,459 - - -
Total current liability 1,266,769 1,065,185 984,070 1,143,316 949,688 763,080 783,730
Total liabilities 4,032,906 3,103,066 2,417,526 1,952,720 1,239,639 863,161 792,525
-----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
-----------------------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008
-----------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY RATIOS
-----------------------------------------------------------------------------------------------------------------------------------
Current ratio 1.88 1.84 1.89 1.7 2.15 3.13 3.5
Quick Ratio 1.66 1.56 1.56 1.34 1.67 2.46
-----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT
-----------------------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008
Operating cycle(days) 169.1 76.47 93.33 99.91 74.09 112.86 118.94
Inventory turnover (days) 46.48 44.69 50.08 51.3 33.53 34.87 23.14
Days sales outstanding (days) 122.62 31.78 43.25 48.61 40.56 77.99 95.8
Total assets turnover 0.27 0.34 0.34 0.43 0.74 0.74 1
Sales-Equity 0.55 0.59 0.53 0.61 0.91 0.84 1.12
-----------------------------------------------------------------------------------------------------------------------------------
DEBT MANAGEMENT
-----------------------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008
-----------------------------------------------------------------------------------------------------------------------------------
Total debt to total asset 51.18% 43.45% 35.27% 28.84% 18.41% 12.00% 10.78%
Long term debt to assets 71.91% 50.46% 32.31% 16.80% 5.28% 1.58% 0.12%
Times-interest-earned 3.56 3.81 5.57 6.04 8.98 9.44 8.82
Debt to equity 1.05 0.77 0.54 0.41 0.23 0.14 0.12
-----------------------------------------------------------------------------------------------------------------------------------
PROFITABILITY
-----------------------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008
-----------------------------------------------------------------------------------------------------------------------------------
Return on total assets 11% 10% 12% 12% 15% 12% 9%
Return on equity 22% 17% 19% 17% 18% 13% 10%
Gross profit on sale 55% 43% 46% 36% 25% 22% 13%
Profit margin on sales 39% 29% 35% 28% 20% 16% 9%
-----------------------------------------------------------------------------------------------------------------------------------
MARKET RATIO
-----------------------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008
-----------------------------------------------------------------------------------------------------------------------------------
Price/earning ratio 2.78 6.61 7.18 5.47 4.32 7.59 7.03
Dividend per shares 3 2.5 2.5 2 1 1.5
Book Value per share 22.7 23.83 26.18 28.44 32.42 37.35 38.72
EPS 4.89 4.13 4.85 4.75 5.98 4.94 3.86
===================================================================================================================================
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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].
Comments
Comments are closed.