Hub Power Company Limited

The Hub Power Company Limited (PSX: HUBC) stands as Pakistan’s first and largest Independent Power Producer (IPP), boasting a total installed power generation capacity of 3,581 MW. Its flagship facility, the Hub Plant, is a thermal power station powered by residual fuel oil (RFO) that supplies electricity to the national grid. HUBC also operates the Narowal Plant, an RFO-fueled combined cycle power station, and holds a 75 percent controlling stake in Laraib Energy Limited, which operates a run-of-the-river hydropower plant. Furthermore, HUBC has partnered with China Power International Holdings (CPIH) to establish the China Power Hub Generation Company Limited (CPHGC), a 1,320 MW coal-fired power plant that includes an integrated coal jetty and has commenced commercial operations.

To drive future growth, HUBC has created 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 is responsible for operations and maintenance (O&M) of HUBC’s existing assets, including indigenous coal-based projects. HPSL is also exploring additional onshore and offshore opportunities and currently manages operations for the Hub, Narowal, Laraib, and Thar Energy Limited plants.

HUBC has an 8 percent equity stake in Sindh Engro Coal Mining Company Limited (SECMC), a joint venture involving Engro, Thal Limited, HBL, CMEC, and the Government of Sindh. SECMC successfully doubled its coal mining capacity on October 1, 2022, following the launch of Phase II commercial operations, which supply coal for HUBC’s Thar Energy Limited and ThalNova projects.

As part of its Thar Coal initiatives, HUBC established Thar Energy Limited (TEL), a 330 MW lignite-fired mine-mouth power plant in Thar Coal Block II, Sindh. HUBC holds a 60 percent stake in TEL, alongside equity partners Fauji Fertilizer Company Limited (FFCL) with 30 percent and CMEC TEL Power Investments Limited (CMEC Dubai) with 10 percent. HUBC has also secured a majority stake in Thal Nova Power Thar Pvt. Ltd (TNPTL), another 330 MW lignite-fired mine-mouth power plant, further solidifying its leadership in coal-based energy production.

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.

The Hub Power Company Limited (HUBC) reported its highest-ever profit for FY23, driven by its diversification strategy and a greater share of profits from associates and joint ventures. This growth was fueled by its coal investments, particularly from the China Power Hub Generation Company (CPEC), which has been contributing since FY20, as well as the addition of the ThalNova Power Plant in February 2023 and TEL later in FY23. Consolidated revenue increased by 18 percent, primarily due to higher furnace oil prices, despite a 9 percent decline in electricity dispatches. HUBC’s bottom line surged by 110 percent year-on-year, thanks to controlled expenses, higher other income, and a significant rise in profits from associates. However, rising finance costs, which increased by 144 percent due to higher interest rates and TEL’s finance costs, partially offset the profitability gains.

HUBC in FY24 and beyond

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 ThalNova 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.

The company’s earnings for 1QFY25 reflected a 12 percent year-on-year increase but a 7 percent decline quarter-on-quarter. The company’s topline decreased by 5 percent year-on-year due to lower load factors at the Narowal plant, China Hub Power Generation (CPHGC), and Thar Energy Limited (TEL). Profits from associates and joint ventures fell 14 percent year-on-year, influenced by the rupee’s appreciation and a high base effect from the previous year.

Other income surged by 265 percent year-on-year to one billion rupees, while finance costs declined by 23 percent year-on-year due to lower interest expenses. However, the company did not declare a dividend for 1QFY25, possibly reflecting its focus on expansions and the expiration of its base plants

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 percent 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. Also, HUBC’s Power Purchase Agreement (PPA) for its base plant was terminated on October 1, 2024. As a result, HUBC will receive payments for outstanding receivables, excluding late payment surcharges, but will no longer earn future capacity payments. The termination is expected to result in an impairment loss, impacting FY25 earnings.