Engro Powergen Qadirpur Limited

Engro Powergen Qadirpur Limited (PSX: EPQL) is an independent power producer with 217 megawatts (MW) combined cycle power plant near Qadirpur, District Ghotki. It was incorporated in 2006 and is headquartered in Karachi. The plant is a combined cycle plant, with 1+1+1 configuration including one gas turbine, one heat recovery system generator (HRSG), and one steam turbine. It uses permeate gas as its primary fuel source and high speed diesel (HSD) as backup fuel to produce electricity. EPQL achieved commercial operation in March 2010, and was listed on the Karachi Stock Exchange in October 2014.

Shareholding Pattern

As at December 31, 2018, the major shareholder of EPQL is Engro Energy Ltd. (formerly Engro Powergen Limited) with a shareholding of around 69 percent, while 22 percent of the shares of the power company are held by local general public. A breakup of the shareholding category-wise is given in the table.

A look five years back show that in 2014, Engro Powergen Limited and Engro Corp, divested 18 percent and 100 percent of their shareholdings in EPQL, respectively. The offer aggregated to 80.95 million shares and represented 25 percent of the total shareholding of the company.

Previous Performance

Overall, 2014 was a better year for EPQL after a weak 2013 due to a fault in the gas turbine generator rotor. With the plant back online in 2014, better operations translated into higher profitability for EPQL. In 2014, EPQL’s sales grew by around 29 percent, while the earnings were up by 39 percent, year-on-year.

During 2015, EPQL’s billable available capacity factor dropped slightly and revenues depicted a moderate growth of 11 percent year-on-year mainly on account of retrospective billing of GIDC pertaining to prior years. However, EPQL’s earnings slipped by 11 percent year-on-year, which the company believes was due to lower demand owing to grid issues at power purchaser’s end and a higher planned outage for a major inspection activity; this dragged EPQL’s load factor from 92.6 percent in 2014 to 76.7 percent in 2015.

2016 marked the improvement in EPQL’s billable availability factor, but the load factor dropped further to 67.2 percent compared to 76.7 percent in 2015. This was due to NTDC’s transformer catching fire. However, the plant remained on standby mode until the completion of transformer repair and was entitled to full capacity payments throughout the period. Revenues for 2016 were down by over 14 percent, year-on-year due to lower load factor. However, earnings remained stable due to improvement in working capital position, lower running finance costs and timely payments to the fuel supplier.

In 2017, EPQL was able to raise its electricity output and hence, load factor improved from 67.2 percent to 92.9 percent in 2017. EPQL’s topline growth was due to improvement in load factors; and reduction in finance cost and higher absorption of O&M costs on account of increased demand in 2017 resulted in the bottomline showing an increase of 34 percent, year-on-year.

The power company’s revenues in CY18 remained almost the same as for the last two years. The company faced supply disruptions again in 2018 on account of gas supplier’s compressor issues, which resulted in lower load factors for the company. The firm’s bottomline was up by 10 percent due to significant decline in finance cost and no growth in cost of sales during CY18. Gross margins of the company saw an improvement in 2018 versus 2017 due to higher tariff indexation as a result of steep depreciation of the Rupee versus the US dollar.

Currency depreciation in 2018 and 2019 were key factors driving growth for Engro Powergen Qadirpur. company with revenues climbing by 11 percent year-on-year in CY19, which was due to increase in gas prices as well as currency depreciation. In terms of power generation, the load factors in CY19 remained lower versus CY18 due to lower demand as well as gas curtailment as the key gas field Qadirpur continued to witness depletion. Restricted growth in cost of sales and decline in administrative and other operating expense lifted the gross margins and operating margins, respectively. Whereas the lift in net margins was also due to 71 percent year-on-year fall in net finance cost, which was due to higher interest income earned on receivables from the power purchaser amid rising circular debt. EPQL’s bottomline for CY19 was up by 30 percent year-on-year.

In CY20, Engro Powergen Qadirpur Limited’s earnings for 2020 were weaker than 2019; the IPP’s bottomline contracted by 39 percent year-on-year, which emanated from an equal percentage decline in the topline (39% YoY). The decrease in sales revenue was partially attributable to lower power dispatch in CY20, which was due to lower electrical output as demand remained constrained during the year. Decline in offtake from the power purchaser came on the back of lower demand for power due to COVID-19 lockdown as well as the merit order position. Despite no significant increase in cost pressure as well as notable growth in other income and finance income earned on receivables in 2020 versus finance cost in 2019, EPQL’s earnings remained lower.

In CY21, sales revenue for EPQL increased by 26 percent year-on-year. The increase in sales revenue was attributable to higher dispatch during the year and was partly offset by lower capacity payments due to debt servicing component no longer being applicable. Consequently, gross profit for the year was lower, and the company’s earnings were down by 24 percent year-on-year.

In CY22, EPQL’s revenues witnessed a dip of 2 percent year-on-year. The slight decline in revenues was due to weaker utilization primarily on account of maintenance outage. A key factor for a drop in profits for CY22 was the rise in administrative costs amid rising inflation – and also a decrease in net finance income for the year by around 69 percent year-on-year.

EPQL – earnings up in 9MCY23

A key factor for the rise in profits for 9MCY23 was the growth witnessed in revenue. EPQL’s revenues increased by 44 percent year-on-year, and the power company’s earnings were seen rising by over 77 percent year-on-year. The increase in sales revenue is attributable to higher dispatch as well as higher Period Weighing Factor (PWF) applicable on capacity payments. As a result, gross profit for the period was also higher by 72 percent year-on-year despite the growth seen in cost of sales. And the company’s gross margins went up from 20 percent in 9MCY22 to 24 percent in 9MCY23.

The operating margin and net margin also witnessed uptick as EPQL’s expenses grew moderately during the period. Administrative expenses increased by around 20 percent year-on-year, while other expenses dipped by eight percent year-on-year during the 9-month period. There was a decline in other income by 20 percent year-on-year. However, this was more than offset by a rise of 27 percent year-on-year in finance income. As a result, the net margins were up from 18 percent to 22.4 percent in 9MCY23.

The power demand in the country continues to decline due to the current macroeconomic challenges including inflation, power prices hikes and lower economic growth. However, the company expects to continue to receive dispatch from the power purchaser as it generates cheaper electricity in comparison to its peers. Along with the 9MCY23 results, the Board of Directors of EPQL announced an interim cash dividend at Rs2 per share in addition to the interim cash dividend already paid at Rs1.50 per share.