Nishat Chunian Power Limited is a public limited company incorporated in February 2007. It is listed on both Karachi and Lahore Stock Exchanges, and was established with the objective of setting-up a new power generation project having gross capacity of 200 MW under a 25 year 'take or pay' agreement with National Transmission & Dispatch Company Limited (NTDCL).
The project has been established under 2002 Power Policy of the Government of Pakistan and has been granted a generation license by the National Electric Power Regulatory Authority in September 2007. Nishat Chunian Power Limited commenced its commercial operations on July 21, 2010, and the primary fuel of the plant is Residual Furnace Oil (RFO). The plant has combined cycle with 11 reciprocating engines and a heat recovery steam turbine. The Operations and Maintenance contract for the plant is with Wartsila Pakistan. Net output of the project is 195.722 MWh.
FINANCIAL PERFORMANCE FY14 Nishat Chunian Power Limited completed four years into commercial operations, the firm's revenue touted a healthy growth in FY14, witnessing a growth of 10 percent year-on-year. The increase in turnover was due to increase in electricity being dispatched as the plant was running on higher load factor. In FY14, the IPP's capacity factor stood at 88.82 percent compared to 74.83 percent in FY13.
Where the gross margins tapered during the year, the net margins of the company remained more or less constant at 10.5 percent. Operations and maintenance (O&M) savings, a combination of improvement in capacity utilisation and limited repair expenditure were the key reason for improved profitability. Let it be known that during the initial years of commercial operations O&M charges are low; they start to escalate as the plant ages.
What also contributed to the earning of NCPL in FY14 was the sudden devaluation of Pakistani rupee in the first half of FY14 and rise in both US and domestic inflation contributed to increased sales, leading to improved bottom line. At the same time, a reduction of 21 percent year-on-year in finance cost also backed the earnings of FY14.
FINANCIAL PERFORMANCE 1QFY15 The power company posted a hefty increase in its net earnings in 1QFY15. The rise of 41percent year-on-year in the bottom line came from higher fuel savings and lower O&M expenditure. With a top line growth of five percent year-on-year, and no significant change in the cost of sales, fuel savings escalated due to better fuel efficiency and higher utilisation of around 88 percent in 1QFY15 as against 80 percent in 1QFY14. However, finance cost can be seen to have jumped up as circular debt has gained momentum once again.
LIQUIDITY Circular debt continues to pose threat to the firm, which remained a challenge for the IPP even after the repayment by the government in 2013; NCPL's total receivables from National Transmission and Distribution Company Limited (NTDCL) amplified to over Rs 10 billion in FY14, increasing by 75 percent year-on-year, out of which Rs 4.93bn were overdue.
OUTLOOK It must be iterated that the company is in its initial years of commercial operations; the operation and maintenance cost are low during early stages of the project. Similarly the efficiency of the plant is higher in the foundation years. Also, the loan agreement for the plant is such as to boost earnings temporarily in line with the principle repayments of the company. In contrast, both aforementioned factors pointed towards reduced profitability in the future.
Though the firm was able to put forward significant increase in year-on-year earnings, future profitability of the firm will remain under check due to the ongoing repair and overhaul at the plant facility. Also, the return of circular debt and the investment in coal power project eating away the dividends might keep shareholder cautious.
The company plants to operate on full capacity in FY15, and arrange short term borrowing to improve liquidity. The key risks for NCPL include resurgence of circular debt and the likely cut in dividend payout due to expansion plans. Also the reduction in efficiency could be a risk to the company. On the other hand, more than anticipated rupee depreciation against dollar is a positive sign for the company.
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Nishat Chhunian Power Limited
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FY11 FY12 FY13 FY14
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Profitability
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Gross margin (LHS) 22.61% 23.94% 20.14% 17.86%
Net margin 7.92% 9.29% 10.88% 10.53%
ROA 6.50% 7.01% 12.10% 10.62%
ROE 32.94% 33.40% 37.66% 41.27%
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Liquidity & leverage
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Current ratio 1.32 1.32 2.23 1.36
Leverage 4.07 3.76 2.11 2.89
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Activity
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Return on fixed assets 121.5% 136.5% 170.4% 195.7%
Return on total assets 82.1% 75.5% 111.2% 100.8%
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Investment
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EPS (Rs/share) 5.51 5.46 7.45 7.90
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