Lalpir Power Limited

Lalpir Power Limited (PSX: LPL) is part of the reputable Mansha Group, which also had power companies like Pakgen Power Limited, Nishat Power Limited and Engen Private Limited as part of its portfolio. It was set up in 1994 to operate a 362MW oil fired power plant in Mehmood Kot, Muzaffargarh, Punjab. The plant was set up under the Energy Policy 1994 and Nichimen Japan was hired for EPC contractor. The unit has been operating since November, 1997.
Historical performance
Even though LPL registered an increase in revenues from 2011 to 2013, it has subsequently witnessed its top line take a hit in the past two years. The gross and net margins however, continue to slide from 2011 to 2013 with the lowest point of the firm being 2013 in terms of profitability.
The director's report attributes this to an increase in delta loss, which it measures as grams per kWh fuel consumption. The net margin was reduced from 4.83 percent in 2011 to 1.76 percent in 2013. However, since then the company has managed to recover somewhat and its net margin has risen up to 3.85 percent.
From an EPS of Rs 4.15 in 2011 the company has slid down to an EPS of Rs 2.24 in 2015. While the rise in FO prices coupled with a higher load factor has indeed increased the top line during these years, it also simultaneously chipped away at margins on account of a higher generation cost thereby resulting in a fall in the EPS.
Throughout the past five years, LPL has had issues with WAPDA, which is its sole customer over payment of dues. By the end of 2015, Rs 6.68 billion was outstanding against WAPDA out of which Rs 4.50 billion was classified overdue. The company has blamed this delay in payment for disruption in fuel supply, which in turn affects its generation performance.
Lalpir Power Limited's top line took a considerable hit during 2016, which might be attributable to lower furnace oil prices during the period as well as lower despatches. The company continues to face issues with CPPA against payment of dues that has resulted in erratic fuel supply and hence the reduced capacity factor.
Even though revenue was markedly lower as compared to the previous year, the company was able to earn a better profit margin in 2016 due to a decrease in the delta loss, which meant lower fuel consumption per kwh generated.
However, like the majority of IPPs, LPL has been facing the adverse impacts of circular debt and was owed Rs 8.6 billion as outstanding till 31 December, 2016 out of which Rs 4.24 billion was classified overdue. The rise in circular debt has affected cash flow and constrained liquidity of the majority of IPPs in the power sector and LPL has been no exception.
For the 9MCY17 period LPL has seen only a marginal change in its profitability. There was lower generation on account of less demand by the CPPA and the company's capacity factor dropped down to 54.4 percent as compared to 59.8 percent in 9MCY16. During the period, LPL has also managed to get a favourable decision pertaining to its issue of liquidated damages claimed by the CPPA.
Stock performance/ Shareholding pattern
Lalpir Power Limited has consistently underperformed the benchmark KSE-100 index for the past year. However, the expansion into renewables with an imminent solar power plant set up might garner investor interest in the future if the profitability of the company also rebounds. The majority shareholders include an 18 percent stake by Engen Pvt. Limited, almost 29 percent by Nishat Mills Limited and 7.2 percent by Adamjee Insurance Company Limited.
Future outlook
In 2015, LPL had approved investment in the Lalpir Solar Power (Pvt) Limited (LPSL). The principal activity of LSPL will be to build, own, operate and maintain a solar power project having gross capacity up to 20MW which will be located near its oil power plant. The company has managed to recover from its weak financial performance in the past year and diversifying into renewables is a good strategy in the long term. LPL has entered into a contract for a period of thirty years for purchase of fuel from Pakistan State Oil Company Limited (PSO).
The company has also entered into an agreement with General Electric (GE) to improve plant performance. The project aims to improve LPL's plant performance by reducing fuel losses.

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LPL: Pattern of Shareholding

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Category                                                Shares held    Percentage

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Directors and their spouse(s),children                   26,006,412          6.84

Associated Companies, undertakings and related parties  212,589,863         55.97

Public Sector Companies and Corporations                  1,475,000          0.39

Banks,DFIs,NBFC, Insurance, Takaful,

Modarabas and Pension funds                              19,882,410          5.23

Mutual Funds                                             47,199,810         12.41

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General Public

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a. Local                                                 20,023,472          5.27

b. Foreign                                                   27,363          0.01

Foreign Companies                                           678,027          0.18

Others                                                   51,956,375         13.68

Totals                                                  379,838,732        100.00

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