EPQL – improvement in merit order

Engro Powergen Qadirpur Limited (PSX: EPQL) a subsidiary of Engro Energy Limited and formerly known as Engro Powergen Limited (EPL) announced its financial performance for 1QCY21 yesterday, where the IPP did not announce any dividend.

Following the same trend year-on-year, EPQL’s earnings for 1QCY21 were weaker than 1QCY20. This can be seen by the contraction in the earnings by over 55 percent year-on-year. Topline for EPQL fell by 16.8 percent year-on-year. However, channel checks suggest that the decline in the company’s topline (revenue) was not as pronounced as it was anticipated. Despite no significant increase in cost pressure as well as notable growth in finance income earned on receivables in 1QCY21 year-on-year, EPQL’s earnings remained lower.

Amid the lower earnings on the year-on-year basis, the performance of the IPP in 1QCY21 versus the last quarter of CY20 (4QCY21) has seen improvement not only in terms of growth in revenues but also earnings. EPQL’s revenues in 1QCY21 doubled - quarter-on-quarter, while the bottomline growth stood over 8 times higher. This is likely due to EPQL receiving full capacity payment for the quarter as compared to 53 percent received during 4QCY20, as per a research note by Optimus Capital Management.

Compared to 4QCY20, the load factor in 1QCY21 is also expected to be higher due to improvement in the IPP’s position on the merit order. This improvement is reportedly coming from RLNG plants falling lower in the merit order due to high cost, which pushed EPQL up a rung. Sequentially, the finance income was lower in 1QCY21 as the company made a onetime adjustment on account of GIDC revaluation surplus in 4QCY20.

Receivables have been a key issue for the IPPs and the larger circular debt problem. EPQL along with the government reached an understanding to revise terms in agreements with IPPs and to devise a mechanism for payment of overdue receivables. This is expected to help with the liquidity position of the IPP going forward.