HUBC - earnings continue to rise

The Hub Power Company Limited (PSX: HUBC) has been benefitting from its diversification beyond the base plant and into coal and hydel. The independent power producers’ earnings have been showing growth stemming primarily from the plants commissioned lately. After a strong finish in FY23, HUBC’s financial performance in FY24 so far (1HFY24) has continued to show growth in earnings. Although the latest quarterly consolidated financials of 2QFY24 show moderate growth in earnings - 15 percent year-on-year - the 1HFY24 bottom line for HUBC was seen growing by 44 percent year-on-year.

The growth in earnings for HUBC was supported by the topline growth despite zero dispatches of power from the base plant at Hub. During 2QFY24, the revenues for HUBC were up by 19 percent year-on-year due to higher dispatches from Thal Energy Limited (TEL) and also thanks to depreciation of the local currency against dollar. The zero offtake from Hub Plant was due to weak power demand especially based on furnace oil due to high prices as focus remained on coal-based generation. Overall, in 1HFY24, the topline growth was 16 percent year-on-year. And zero dispatches from the base plant also reflected in lower cost of sales, leading to higher gross profits for the quarter.

The power company incurred higher expenses particularly finance costs that doubled in 1HFY24 and grew by 46 percent year-on-year in 2QFY24 due to higher short-term borrowings, higher interest rates and also higher borrowing quantum to finance the two new projects: ThalNova plant and Thal Energy. However, a staggeringly higher share of profits from associates and joint ventures in 1QFY24 as well as modest growth in the same in 2QFY24 offset the impact of finance cost on the bottomline in 1HFY24.

HUBC’s earnings in the coming quarter are likely to continue to show the fruits of diversification as higher power demand in the summer season will propel dispatches. Also, the company has recently entered into an agreement to acquire an additional 9.5 percent stake in Sindh Engro Coal Mining Company Limited (SECMC) previously held by HBL, as announced by the company on PSX. This transaction will lead to a total holding in SECMC by HUBC to 17.5 percent, which will also bear a positive impact on the company’s earnings going forward.

HUBC also announced a Rs4 per share dividend for the quarter.