Hub Power Company Limited

The Hub Power Company Limited (PSX: HUBC) is the first and largest Independent Power Producer (IPP) in Pakistan, with a total installed power generation capacity of 3,581 MW. Its primary facility, the Hub Plant, is a thermal power plant that runs on RFO (residual fuel oil) and supplies electricity to the national grid. HUBC also operates the Narowal Plant, an RFO-fired, engine-based combined cycle power station. Additionally, the company holds a 75 percent controlling stake in Laraib Energy Limited, a run-of-the-river hydropower plant. HUBC has a joint venture with China Power International Holdings (CPIH) for a 1,320 MW coal-fired power plant, China Power Hub Generation Company Limited (CPHGC), which includes an integrated coal jetty and has commenced commercial operations.

To support future growth, HUBC has established two wholly-owned subsidiaries: Hub Power Services Limited (HPSL) and Hub Power Holdings Limited (HPHL). HPHL focuses on investments in new growth projects, while HPSL manages the operations and maintenance (O&M) of HUBC’s existing power assets, including indigenous coal-based projects. HPSL is also exploring additional onshore and offshore business opportunities and currently oversees the operation of the Hub, Narowal, Laraib, and Thar Energy Limited plants.

HUBC holds an 8 percent stake in Sindh Engro Coal Mining Company Limited (SECMC), a joint venture between HUBC, Engro, Thal Limited, HBL, CMEC, and the Government of Sindh. SECMC successfully doubled its coal mining capacity on October 1, 2022, with the commencement of Phase II commercial operations, providing fuel for HUBC’s Thar Energy Limited and ThalNova projects.

HUBC has also established Thar Energy Limited (TEL) to develop a 330 MW mine-mouth lignite-fired power plant in Thar Coal Block II, Sindh. The company has entered into a shareholders’ agreement with Fauji Fertilizer Company Limited (FFCL) and CMEC TEL Power Investments Limited (CMEC Dubai), which hold 30 percent and 10 percent equity in the project, respectively, while HUBC owns 60 percent. Additionally, HUBC has acquired a majority stake in the 330 MW ThalNova Power Thar Pvt. Ltd (TNPTL) mine-mouth lignite-fired power plant.

Past Performance

FY15 was a transformative year for HUBC, with strong shareholder returns and a successful business turnaround. Despite a slight drop in load factors due to boiler maintenance, consolidated earnings rose by 48 percent year-on-year.

In FY16, earnings grew by 7.5 percent, but revenues fell 34 percent due to lower furnace oil prices, reduced generation bonuses, and lower electricity demand.

FY17 saw a significant drop in earnings, driven by higher maintenance costs at the Hub and Narowal plants, unfavorable exchange rates, and losses from early-stage TEL and CPHGC projects. Increased administrative expenses also contributed to a 9.2 percent decline in profits.

In FY18, earnings rose by 3 percent, despite lower revenues. This modest growth was due to reduced maintenance costs, although profits from Laraib were lower, and financing costs increased. Load factors at the Hub and Narowal plants dropped due to reduced electricity demand and maintenance work.

FY19 was challenging, with furnace oil-based generation falling 60 percent, slashing HUBC’s base plant load factor to 7.87 percent. Revenues dropped by 42 percent, but lower operating costs helped the company maintain flat earnings growth of 2 percent, despite higher finance costs and capital expenditures.

FY20 was impacted by the COVID-19 pandemic and government scrutiny of IPP returns. However, HUBC’s earnings more than doubled, driven by its 1,320 MW coal-fired plant and currency depreciation. Growth was tempered by higher finance costs, increased taxes, and a one-off equity transfer to the Government of Balochistan.

In FY21, HUBC’s revenue grew 13 percent, supported by a 40 percent increase in power dispatches and improved load factors across its plants. Earnings rose by 34 percent due to profits from CPHGC and lower finance costs.

FY22 saw a 15 percent drop in earnings, mainly due to lower profits from associates and higher finance costs. However, revenues increased by 78 percent, driven by higher utilization of the base and Narowal plants. Despite this, gross profits were flat, and no dividends were declared due to high fuel and commodity prices.

HUBC in FY23

The IPP reported a significant increase in consolidated earnings, achieving its highest-ever profit for FY23. This growth was driven by HUBC’s diversification strategy and a higher share of profits from associates and joint ventures. The company no longer relies on its base plant at Hub for electricity dispatches. Profits were bolstered by its coal investments, particularly from China Power Hub Generation Company (CPEC), which has been contributing since FY20, along with the addition of ThalNova Power Plant in February 2023 and TEL later in FY23.

Consolidated revenue grew by 18 percent, mainly due to higher furnace oil prices, despite a nine percent year-on-year decline in electricity dispatches in FY23.

HUBC’s bottom line increased by 110 percent year-on-year, driven by controlled expenses and higher other income. The largest contributor was the share of profits from associates, which rose more than 3.7 times, due to a claim for property damage, business interruption, and the addition of Eni’s business. Currency depreciation also played a role. However, higher finance costs—up 144 percent year-on-year due to rising interest rates and TEL’s finance costs—impacted profitability.

HUBC in FY24

In FY24, Hub Power Company Limited (HUBC) delivered a robust financial performance, reporting consolidated earnings of Rs75 billion, reflecting a 22 percent year-on-year increase. This growth was driven by higher dispatches from Thar Energy Limited (TEL), the devaluation of the PKR against the USD, and improved operational efficiencies. Overall revenue growth stood at 14 percent year-on-year. While TEL and Thal Nova Power Thar (TNPTL) showed strong performance with the increased generation, China Power Hub Generation Company (CPHGC) saw a decline. HUBC’s gross margins improved, benefiting from currency devaluation and contributions from new power plants. Despite a 38 percent rise in finance costs, net margins increased, supported by a 44 percent rise in profits from associates due to the commencement of operations at TEL and TNPTL, along with the currency impact.

The company announced a total dividend of Rs20 per share for FY24, down from Rs30 in FY23, due to increased capital expenditure and new investments.

Outlook

HUBC is strategically diversifying its portfolio with major expansions into electric vehicle (EV) production and lithium mining. The company plans to build a plant capable of producing 50,000 EVs annually, with 30-40% designated for export to Australia and Africa by 2025. Additionally, HUBC is exploring lithium mining and battery manufacturing, aiming to tap into the growing demand for rechargeable batteries, especially in the EV sector. These ventures will contribute to long-term revenue growth, although higher capital expenditure and finance costs could affect short-term profitability.