Hub Power Company Limited

The Hub Power Company Limited (KSE:HUBC) is one of the largest Independent Power Producer (IPP) in the Country with a combined power generation capacity of over 1600MW, and generates about nine percent of the Country's electricity. The IPP was incorporated in 1991 as a public limited company. It was one of the first and the largest IPPs to be financed by the private sector in southern Asia. The company holds immense significance as its shares are listed on all the three stock exchanges and its global depository receipts (GDRs) are listed on the Luxembourg Stock Exchange. The company was originally sponsored by two international players named: International Power and Xenal, both of which have withdrawn their stakes.
The Hub Plant in Balochistan is one of the most efficient steam turbine based thermal power plants in Pakistan, and it supplies electricity to the National grid. The Narowal Plant is an oil-fired, engine based, combined cycle thermal power station, located in Punjab. The firm also holds 75 percent controlling interest in Laraib Energy Limited which owns and operates an 84 MW run off the river hydel power plant near Mangla Dam in Azad Kashmir.
Hub Power Company has also recently established wholly owned subsidiaries for its future initiatives. Hub Power Holding Limited has been incorporated to invest in the coal based 2x660 MW power project while Hub Power Services Limited has been incorporated to take over the O&M of the Hub Plant and upcoming coal plant.
FY14 Snapshot In FY14, HUBC's level of efficiency was affected as the company initiated refurbishment of two boilers, which resulted in unavailability of the plant, which resulted in the imposition of liquidated damages by NTDC. Thus its operational performance during FY14 remained cowed. The other two plants, Narowal and Laraib however made positive contributions in FY14.
On the financial side, HUBC's earnings were downplayed by major repairs and connected expenses. Firm's gross margins dropped by 3.3 percentage points in FY14, while the bottom line dropped by 30 percent, year-on-year. Except for Laraib plant, which completed its first year of operations, both Narowal and the base plant at Hub, Balochistan contributed to the attrition in the firms revenues and hence the earnings.
In short, reduction in profits came mainly from lower load factor caused by plant closures because of boilers tubes leakages, lower generation bonus, lower efficiency, liquidated damages and higher repair and maintenance spending including the expenditures for rehabilitation works carried out in FY14.
Operational highlights FY15 In FY15, HUBC was able to establish a joint venture with China Power International Holdings to co-develop its two 660 MW plants based on imported coal along with an ancillary coal jetty at the existing Hub plant site. This Project is being developed under China Pakistan Economic Corridor (CPEC) platform.
The IPP took over the Operation & Maintenance (O&M) of the Hub Power Plant through a wholly owned subsidiary. Additionally, HUBC is also investing USD 20 million in Sindh Engro Coal Mining Company (SECMC), a joint venture between Engro and the Government of Sindh, to develop the Thar coal mines.
During FY15, Hub Plant maintained an uninterrupted power supply to the national grid. It generated 6,810GWh of electricity compared to 7,087GWh in FY14, which is a load factor of 65 percent compared to 67 percent. The load factors and generation remained flattish as rehabilitation work on the third out of four boilers continued in the fiscal year.
The Narowal plant generated 1,418GWh of electricity compared to 1,562GWh last year, which is a load factor of 76 percent versus 83 percent in FY14. The load factor in Narowal's case was affected by higher curtailment by National Power Control Center.
Laraib plant - known as the New Bong Escape Hydro Power Project (NBEHPP) -completed two years of operations in FY15. During the year, the plant generated 489GWh of electricity compared to 470GWh in FY14, which is at a load factor of 66 percent compared to 64 percent previously.
HUBC recovering in FY15 The IPP started its recovery path in FY15. In Fy15, the firm announced a healthy improvement in its financial performance for FY15 along with final cash dividend of Rs 5 in addition to Rs 4 interim dividend already paid. The firm's revenues continue to see a drop in FY15 as the furnace oil prices remained weak.
A catalytic factor for the power company in FY15 was the absence of operation and maintenance cost, which was huge in the previous year due to overhaul of the two boilers in HUBC's base plant. This can be seen by the improvement in the gross margins from 7.3 percent in FY14 to almost 11 percent in FY15.
The firm's bottom line depicted a dynamic growth of 55 percent year-on-year due to the net effect of dividend income from Laraib Energy Limited, lower repair and maintenance expenditures, higher generation bonus, lower efficiency loss, lower liquidated damages and write-off of damaged assets at Narowal Plant.
Outlook Now that the IPP has recuperated from the overhaul burden, its 1320MW coal power plant and the likely spin off of Hub's Narowal Plant have optimistic projections for the firm. However, to achieve a similar profitability in the ongoing year (FY16) might be compromised somewhat due to the operations and maintenance costs of a boiler again.

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Hub Power Company Limited

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                                              FY12      FY13      FY14      FY15

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Profitability Ratios

Gross Profit margin                %          8.96      9.84      7.25     10.94

Net Profit margin                  %          4.69      5.66      4.05      7.49

Operating cost to turnover         %         91.04     90.16     92.75     89.06

Fuel cost to turnover              %         86.80     85.03      86.6     81.97

Return on Equity                   (%)       27.17     29.63     20.58     31.44

Liquidity Ratios

Current Ratio                      Times      1.04      1.18      1.06      1.08

Quick / Acid Test Ratio            Times      1.02      1.05      1.01      1.01

Cash to Current Liabilities        Times     0.003     0.396     0.032     0.006

Activity /  Turnover Ratios

Inventory Turnover                 Times     57.34     49.67     45.22     39.98

Receivables Turnover               Times      1.47      1.89      3.09      1.72

Payables Turnover                  Times      1.53      1.82         3      1.86

Total Assets Turnover              Times      0.84      1.67      1.19      1.04

Fixed Assets turnover              Times      3.79      3.82      3.93      3.39

Investment / Market Ratios

Earnings Per Share                 Rs         7.08      8.11      5.66      8.51

Price Earning Ratio                Times      5.92       7.6     10.28        11

Dividend Yield                     %         14.32     12.98     11.18     10.15

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