Pakgen Power Limited

Pakgen Power Limited (PSX: PKGP) was incorporated in 1995 with the registered head office based out of Lahore. The company originally started its commercial operations in February 1998. The principal activities of the power company are to own, operate and maintain an oil fired power station having gross capacity of 365 MW in Mehmood Kot, Muzaffargarh, Punjab, Pakistan.
The firm was formerly known as AES Pak General Company Limited. Subsequently, the name was Pakgen Power Limited in November 2010 after it was acquired by a consortium of Pakistani businessmen comprising of Nishat Mills Limited, Adamjee Insurance Company Limited, Security General Insurance Company Limited, Mian Hassan Mansha, City School Group and Abu Dhabi Investment Council. The Company under the new management was converted from a private unlimited liability company to a public listed company in July 2010.
Major shareholders of the company as on December 31, 2017 include Nishat Mills Limited (27.55 percent), Engen (Private) Limited (17.33 percent) and Adamjee Insurance Company Limited (6.89 percent). The electricity generated is purchased by WAPDA under the Power Purchase Agreement (PPA) executed with the company on September 05, 1995 which is valid for a period of 30 years
Financial and operational performance
Financial performance of Pakgen Power Limited in CY15 was reflective of increased profitability and higher margins. However, CY15 saw revenues take a severe fall. The net sales in CY15 were down by 81 percent, and this was primarily due to lower dispatch levels of only 8 percent compared to 63 percent in CY15, and an average of around 60 percent in the last five years.
This loss in dispatch level is was due to the failure of main station transformer, which was shifted to WAPDA transformers' repair workshop for inspection and repair where it was reported as non-repairable. Hence, the company had to import the new transformer, which became operational in January 2016. In addition, the company cited payment issues with WAPDA, which resulted in irregular supply of fuel, affecting plant operations.
Because of low dispatch levels, WAPDA has raised invoices for liquidate damages to the company However, the firm is of the view that since technically the plant was available to deliver electricity as per WAPDA's requirement, and the failure to deliver was only to financial constrains caused by default in payments by WAPDA, WAPDA cannot claim the liquidate damages.
Looking at the company's historical performance, the situation was opposite with revenues increasing but margins shrinking due to higher cost on fuel consumption. PKGP's financial performance for CY13 continued to show the decrease in net margins even though the firm's revenues witnessed a growth of 12 percent year-on-year. The trend of decreasing margins continued in CY14.
In CY16 Pakgen Power Limited recovered considerably from its dismal performance in the year and posted better results for the year. The company witnessed a massive increase in revenue of 120 percent due to increased despatches with a corresponding increase in cost of sales of 93 percent as compared to the previous period. The increased despatches were due to resumption of plant operations on January 29, 2016 after a long interruption as a result of Generator Stepup Transformer (GSU) failure on February 7, 2015 as mentioned above.
Recent snapshot
PKGP operated at a capacity factor of 50 percent during CY17, while the load factor was 64 percent. The amount of electricity dispatched amounted to 1523 GWh, which was lower than the 1603 GWh dispatched in CY16. However, the company's revenues increased by 23 percent on a year-on-year basis while the gross profit improved considerably as well. As a result, the company's gross margins picked up by 180 basis points. Both the company's PAT and EPS also saw an increase of almost 150 percent as compared to CY16. However, the outstanding amount against CPPA grew to Rs14 billion during the year out which Rs325 million was classified as overdue by PKGP.
Stock performance
PKGP underperformed the benchmark KSE-100 index till Sep-17 after which it has continued to outperform it till date. Even though fundamentals indicate a positive year ahead for the company, overall market sentiment will eventually direct the price trajectory of PKGP in the near to medium term. In addition, the move to RLNG power plants and PKGP's place on the merit order list in the future will also be a factor in the company's performance.
Outlook
Even though the government has started clearing circular debt which bodes well for IPPs, it is not yet clear exactly how much of the gigantic amount will be able to be settled before the change in regime. PKGP also believes new hydel, coal and RLNG generation at lower prices will result in its dispatches being utilized in peak demand season. The company believes being lower on the merit order list will help it reduce its fuel losses.
Recall that PKGP has also been granted approval for coal conversion of its existing plant, which would have had positive implications for the company in the future. However, according to the management there has been no progress as such on this front because of the government's policy to disallow use of imported coal and SBP's restriction on local financing for import of large machinery projects.
Moreover, the company's planned 20MW solar power plant has been shelved pending a "change in financial outlook."

=======================================================================================

Pakgen Power Limited: Pattern of shareholding (31 Dec,2016)       Percentage share held

=======================================================================================

Directors, CEO & their spouse/minor children                                       3.93

Associated Companies and Related Parties                                           69.3

Of which

Nishat Mills Limited                                                              27.55

Engen (Private) Limited                                                           17.33

Adamjee Insurance Company Limited                                                  6.89

Masood Fabrics Limited                                                             5.62

Banks, DFI's, NBFIs, insurance/takaful firms, modarabas & pensi                    7.52

Public sector companies                                                            1.03

Mutual Funds                                                                       1.56

Foreign investors                                                                  1.46

General public                                                                     8.71

Others                                                                             6.44

=======================================================================================

Total                                                                               100

=======================================================================================