The firm was incorporated in 1913 and is a fully integrated power utility that is involved in generation, transmission and distribution of electricity to the largest metropolis of the country, Karachi. With a hundred-year celebration, Karachi Electric Supply Corporation changed its name to K-Electric Limited in 2013.
The firm provides electricity to not only millions of customers in Karachi but also Dhabeji and Gharo in Sindh and Hub, Uthal, Vindhar and Bela in Balochistan. It covers an area of 6500 square kilometers, supplying electricity to all sectors including residential, industrial, commercial, and agricultural. At present, the company has 2,422 megawatt of installed capacity, which includes 420 megawatt dedicated for coal conversion.
After the firm's privatisation in 2005, Abraaj acquired a controlling stake in KES Power (KESP), currently the 69.2 percent shareholder of KE from Al Jomaih Group and National Industries Group through a commitment to inject equity into the company.
OPERATIONAL HIGHLIGHTS The installed generation capacity of K-Electric Limited has been enhanced by over 1,000 MW, which has translated into 40 percent growth in total capacity from 1,735 MW to 2.422 MW. The overall efficiency has improved from 30.4 percent in FY09 to 37.0 percent in FY14, which is an average of 22 percent efficiency gains in the last six years.
On the transmission front, K-Electric's installed transmission network has witnessed improved reliability with 189km of old EHT line rehabilitated and an additional 62km of EHT lines added. These initiatives have resulted in a 53 percent reduction in transformer tripping in FY14 compared to FY09. Transmission losses have reduced by 2.8 percentage points coming down from over 4 percent in 2008 to 1.4 percent in 2014.
The improvements in transmission lines have also been visible with 34 percent reduction in line trips in FY14 versus FY09. Electricity theft, a very critical issue for the power sector, has also gone down significantly in the six years - 88 percent reduction.
A main driver for K-Electric's turnaround has been a continuous decline in transmission and distribution (T&D) losses. T&D losses at the end of June 2014 stood at 25.3 percent, representing a 10.6 percent reduction since FY09.
FINANCIAL PERFORMANCE FY14 K-Electric's profitable journey started off in FY12, and in FY14 the power generating and distribution company announced earnings 1.89 times that of FY13. This has been due to a significant control in T&D losses through initiatives like discriminatory loadshedding and optimisation of electricity supply.
The firm also announced a cash dividend up to a maximum of 15 percent only for minority shareholders, subject to waiver from its four majority stakeholders namely GOP, KESP, IFC and ADB. The firm did not announce any dividend for majority shareholder due to circular debt and ensuing cash flow constraints.
The firm's top line grew by a meager three percent year-on-year in FY14. However, a better electricity generation as well as better demand, a segmentation of the net revenues show that the net energy sales grew by 24 percent, year-on-year. Total units sold - a function of generation and purchases - increased by around five percent year-on-year in FY14. However, a 28 percent year-on-year decline in tariff adjustment component of revenues offset the overall growth in turnover.
Together with the top line growth, a decline in the cost of fuel and oil and contained transmission and distribution losses resulted in a significant expansion in gross margins. And a further boost came from a 19 percent year-on-year shrink in finance cost which helped net margins improve from 3.6 percent in FY13 to 6.6 percent in FY14.
OUTLOOK Some key takeaways from K-Electric's analyst briefing include taking necessary capex initiatives to further reduce the T&D losses. Management proposed investing in aerial bundle cables (insulated cables), improved transmission lines, and smart meters. Transmission lines would require an investment of around $300 million, while the company has already launched a pilot project for 1000 smart meters.
The firm's liquidity position continues to be affected by the circular debt monster with PSEs remaining the biggest defaulters with net receivable. With the threat still looming, the firm will have to face higher finance cost once again in the time to come. K-Electric plans to issue sukuk worth Rs 22 billion to counter some increase in financial charges temporarily.
On the coal project side, K-Electric has planned to set up two coal-powered plants with a total capacity of 420MW. However, there are a couple of risks these projects face: One, Nepra has yet to approve the leasing arrangements. Secondly, unlike other IPPs these projects do not enjoy government guarantee.
The firm plans to continue focus towards better customer service for which it plans to roll out a technical loss reduction project, which will reduce losses at the feeder level; sustainable loss reduction projects where it plans to convert PMTs in High Loss (HL) and Very High Loss (VHL) areas into Aerial Bundle Cable (ABCs) to benefit both the end consumers and utility through reduced loadshed.
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Karachi Electricity Supply Corporation
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FY10 FY11 FY12 FY13 FY14
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Profitability
Gross margin -3.9% 0.2% 10.0% 15.3% 16.7%
Net margin -14.1% -7.2% 1.6% 3.6% 6.6%
ROCE -23.8% -13.2% 3.0% 3.2% 7.0%
Liquidity
Current ratio 0.70 0.57 0.69 0.71 0.76
Quick ratio 0.32 0.34 0.35 0.40 0.44
Cash to current liabilities 0.01 0.01 0.01 0.00 0.00
Activity
Inventory turnover days 18 17 14 11 13
Debtor turnover days 111 110 132 158 174
Creditor turnover days 118 163 189 186 182
Investment
Debt to Equity Ratio 0.81 0.87 0.82 0.78 0.73
Interest Cover Ratio -1.16 -0.96 1.33 1.29 1.85
EPS (Rs/share) -0.66 -0.39 0.11 0.26 0.47
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source: Company accounts
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