Nishat Power Limited is the third independent power producer (IPP), which was incorporated as a public limited company in 2007 under the Power Policy 2002, after Attock and Atlas. The IPP is a subsidiary of Nishat Mills Limited of Nishat Group - a conglomerate that has a presence in many sectors like cement, textile, insurance, banking and aviation. Through Nishat Mills Limited, the group currently holds 51 percent of the thermal based IPP, Nishat Power Limited.
The IPP's primary activity is to build, own, operate and maintain a fuel fired power plant based on Reciprocating Engine Technology (RET) having gross capacity of 200MW in Jamber Kalan, Tehsil Pattoki, District Kasur, Punjab. Its main customer is National Transmission and Dispatch Company Limited (NTDC), and a supply issue from shell can impact the firm's share price as it has signed a fuel supply agreement (FSA) with Shell Pakistan for the supply of fuel to the oil company.
NPL's investment
NPL participated in the pre-qualification process of sponsors for the development of Coal Power Projects along with other members, comprising of Nishat Mills Limited, Lalpir Power Limited and Pakgen Power Limited. The Consortium successfully pre-qualified and got the letter of interest (LOI) for a 660 MW Coal Power Project. For this purpose, a Special Purpose Vehicle (SPV), has been incorporated namely Nishat Energy Limited to set up a coal power project under the Power Policy 2002 and Punjab Power Generation Policy 2006 as an Independent Power Producer (IPP).
NPL directly holds 25 percent ordinary shares in Nishat Energy Limited (NEL). The investment in NEL is accounted for using equity method. Share of loss of associate is based on the un-audited financial statements of NEL, so where Rs 2500 million is the cost of equity held by NPL in NEL as ordinary shareholding, the share of loss from the associate for the period ending June 30, 2015 was Rs 1201 million.
Performance FY15
Though after achieving 1,473 GWh of generation in the first year of the project's operations, NPL's generation dipped by 28 percent in FY12 due to non-availability of fuel on account of non-payment by the power purchaser. However, the generation improved again in FY13 along with efficiency, NPL dispatched 1,276 GWh of electricity in FY13 to its customer NTDCL, up by 20 percent year-on-year compared to 1,063 GWh in FY12. It operated at an average capacity factor of around 75 percent in FY13 compared to the only 62 percent in FY12. A comparatively lower average capacity load factor was due to lower percentage load during the five months from October till February 2012.
NPL dispatched 1,464 GWh of electricity to NTDCL in FY14, which was 15 percent higher compared to previous year. The average load factor during this year was 85.58 percent. The firm completed its five years of operations in FY15. However, in FY15, the firm saw a slight dip in generation again, which dropped by around four percent year-on-year to 1,410 GWh, with average load factor of 82.4 percent.
NPL's latest annual performance in FY15 was also marked with tepid growth in earnings which was largely attributable to a gradual decline in penal mark-up income, muted growth in O&M savings and lower oil prices that kept fuel savings in check.
The firm's revenues dipped glided down by 19 percent year-on-year. Despite lower furnace oil prices and overhaul that reduced fuel consumption, NPL's earnings growth of seven percent came directly from the efficiency. The firm's bottom line was also supported by a decline in finance cost by around 11 percent year-on-year. On the whole, the main growth drivers for the IPP in FY15 were stable load factors and production, and a reduction in finance cost. Alongside the results, NPL also announced a cash dividend of Rs 1.75 per share making the full year dividend of Rs 6 per share.
As far as the payments from its key client are concerned, NTDCL continued to default on its payment obligations. Total receivables from NTDCL on June 30, 2015 stood at Rs 8 billion, out of which overdue receivables were Rs 5.6 billion as on June 30. 2015.
NPL 9MFY16
NPL's top line in 9MFY16 declined by 37 percent year-on-year, which was due to lower expected generation along with lower crude oil prices, and this was also the key reason behind higher margins. The plant operated at optimal efficiency and dispatched 979 GWh of electricity to its customer NTDCL during the period, with 75.98 percent average capacity factor.
NPL's earnings for 1QFY16 soared on abnormal fuel savings. Absence of the same in the second quarter pulled the bottom line down. 3QFY16 was again a better quarter for the IPP, but not because of fuel savings; while the fuel savings remained lukewarm during the period on account of lower utilisation and lower oil prices, lower maintenance costs were the key forces behind earning growth.
The IPP's bottom line witnessed a 45 percent year-on-year rise. Where improvement in overall earnings came from lower O&M expense, falling finance cost also contributed to the expansion in profits for the period. The firm continued to be the victim of non-payment by NTDCL. Total receivables from NTDCL on March 31, 2016 stood at Rs 8 billion, nothing different from FY15 position. The company has taken the matter with NTDCL and Private Power & Infrastructure Board (PPIB) by giving notices of default pursuant to provisions of Power Purchase Agreement and Implementation Agreement.
Outlook
NPL has been underperforming the benchmark index and the BR Power Index since the beginning of 2016 primarily due to dwindling generation, limited earnings growth, declining load factor evident from the overall shift in country's energy mix towards gas and coal and lower savings due to lower oil prices.
Another price moving factor for NPL has been NCPL announcing to abandon its planned project due to logistical issues. Since NPL is also setting up a similar coal power project in same region, the share prices have responded to the firm's likelihood of abandoning its planned project as well.
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