Nishat Power Limited

Nishat Power Limited (NPL) is a subsidiary of Nishat Mills Ltd which holds 51% shares in NPL and was incorporated in February 2007 for setting up the power plant and it is currently listed on Karachi Stock Exchange (KSE) and Lahore Stock Exchange (LSE).
NPL obtained its Commercial Operations Date (COD) on 9 June 2010; it is engaged in generating, distributing, and supplying electricity to NTDC (National Transmission and Dispatch Company). NPL has Residual Furnace Oil fired independent Power Plant and is located in the vicinity of District Kasur, Punjab, and has the gross capacity to generate 200 MW The company has entered into Power Purchase Agreement with NTDC and will supply net capacity of 195.26 MW to NTDC for the next 25 years at US cents 12.1253 per KWh.
NPL has entered into FSA (fuel supply agreement) with Shell Pakistan for the uninterrupted supply of fuel for 10 years.
Operational highlights The company obtained its COD on 9 June 2010 and for the fiscal year ended 30 June 10, its plant operated with efficiency of 86% capacity factor and dispatched 88,692 MW electricity to national grid. And for the FY ended 30 June 11, the plant operated at optimal efficiency of 86.31 %average capacity factor and dispatched 1,473,018 MWH (1.43 GWH) to NTDCL, its sole customer.
Financial Performance FY11 FY11 was the first complete operational year for NPL and its sales turnover was Rs 20,986 million as compared to Rs 1,018 million in FY10 as company was able to dispatch 1.43 GWH electricity as compared to 342,937 MWH produced in FY10.first complete year of operation resulted in 19.61% increase in sales turnover. Sales turnover also included differential amounts for the month of June 2010 due to change in tariff.
Cost of sales also rose by 19.26 percent to Rs 16,119 million in FY11 as compared to Rs 795 million in FY 10 resulting in a gross profit of Rs 4,867 million as compared to Rs 222 million. The resulting gross profit ratio has improved to 23.19 percent in FY11 as compared to 21.88 percent in FY10.
Net profit ratio has improved markedly to 8.95 percent compared to 4.63 percent in FY10. The growth in net profit ratio is mainly attributed to 38.83 percent increase in net profits to Rs 1,879 million during FY11 (FY10 net profit Rs 47.18 million). A remarkable growth in net profits resulted in EPS of Rs 5.3 as compared to Re0.135 in FY10.and ROE of 53.07 percent as compared to 1.33 percent in FY10.
NPL was unable to pay dividends to its shareholders during FY11 due to cash flow constraints as well as due to certain restrictions imposed by long-term lenders on the distribution of dividends. There was a net decrease in cash flows of Rs 2,164 million which resulted in the yearend balance of cash of negative Rs 3,181 million which includes short term borrowings - secured borrowing of Rs 3,193 million.
Cash generated from operations was Rs 1,666 million but due to the impact of paying finance costs, taxation and retirement benefits net cash flow from operating activities resulted to negative Rs 1,211 million.
NPL investment in purchase of plant machinery also resulted in cash outflow of Rs 383 million. The negative cash flows balance is also the result of repayment of Rs 941 million long term financing. The negative cash flows are indicative of the fact that NPL is having short term financing facility available to run their operations.
Liquidity and operational efficiency Current ratio has improved to 1.63 as compared to 1.17 in FY10. The increase in current ratio is mainly due to the trade debt building up to 6,374 million from 2,668 million. The only customer of NPL is NTDCL. These receivables are guaranteed by Government of Pakistan and carries mark up on delayed payments. The delays made in payments by NTDCL can further create liquidity problems for NPL.
Interest coverage ratio has also improved to 0.64 as compared to 0.25 in FY10. Interest coverage ratio of less than 1 is indicative that NPL is unable to meet its finance costs with its current Profit After tax which creates the liquidity concern for NPL. Finance costs increased to 2,914 million from 185 million in FY10. Finance costs included interest and mark-up mainly on long-term secured financing, unsecured subordinated loans from the holding company Nishat Mills and short term secured borrowing.
Debt to equity ratio has declined to 3.79 from 3.92, which indicates the small proportion of long term loan being repaid. However, Debt to Equity ratio is still very high which shows that it is a highly leveraged organisation.
Future Outlook In the FY12 NPL will be having a full year of operation and can generate electricity at their optimum level but the issues regarding trade debt recovery from NTDC seems to remain the problem and NPL would be requiring further short term financing for running their operations which will increase their running costs while their cash flows will still remain negative.