Pakgen Power Limited

Pakgen Power Limited (PSX: PKGP) is an IPP with principal activity to own, operate and maintain a 365MW oil fired power station in Muzaffargarh, Punjab. It was incorporated in 1995 with head office in Lahore. Its commercial operations started in early 1998.
Initially, the company was known by the name of AES Pak Gen Company Limited that was later changed to Pakgen Power Limited in 2010 when the company 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. As of December 2018, the company's major shareholders included Nishat Mills Limited (27.55 percent), Engen (Private) Limited (17.33 percent) and Adamjee Insurance Company Limited (6.89 percent).
Pakgen in the previous years Pakgen Power has been facing lower dispatches over the last few years. Back in CY15, the IPP saw a spike in margins versus previous years. However, it came from plunging revenues during the year - which resulted in higher margins. Revenues were down by 81 percent, and this was primarily due to lower dispatch level of electricity of only 8 percent compared to 63 percent in CY14, and around 60 percent 5-year average.
Fall in electricity sales for PKGP came from lower generation as the firm witnessed a technical glitch in the main station transformer, and was reported as non-repairable. As a result, the company had to import the new transformer, which only became operational in January 2016. Apart from this, what affected plant operations was the irregular fuel supply and hence payment issues with WAPDA.
WAPDA as a result raised liquidate damages against the company because of lower dispatches. However, the firm is of the view that since technically the plant was available to deliver electricity as per WAPDA's requirement, WAPDA cannot claim the liquidate damages because the failure to deliver was only due to financial constrains caused by default in payments by WAPDA.
In CY16, Pakgen Power Limited recovered with revenue growth of 120 percent year-on-year due to increased dispatches as the plant resumed operations on January 29, 2016 after a long interruption. Cost of sales increased in tandem by about 93 percent as compared to the previous period and hence the earnings fell by 68 percent year-on-year.
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, lower than the 1603 GWh dispatched in CY16. The firm's revenues increased by 23 percent year-on-year due to higher prices while the gross profit improved due to lower cost of sales. As a result, the company's gross margins picked up by 180 basis points. Company's earnings saw an increase of over 150 percent as compared to CY16. However, the outstanding amount against CPPA-G grew to Rs14 billion during the year out of which Rs325 million was classified as overdue by PKGP.
Again in CY18, the Pakgen plant witnessed lower utilisation levels as it operated at capacity factor of 26.5 percent with load factor of 54.8 percent, lower than the previous year as the preference of fuel oil based power plants slipped amid government's plan to phase out furnace oil from the power sector. As a result, revenues took a dive of around 18 percent. Due to lower costs of generation, the company's earnings improved by 13 percent, year-on-year.
As per the latest quarterly financials, PKGP's earnings grew by over 100 percent year-on-year in 1HCY19, but the revenues plunged by 27 percent. Total electricity dispatched by the IPP was down by a significant 57 percent year-on-year. As a result, the capacity factor remained at 15.4 percent as against 36.3 percent demonstrated in the comparable six months of the previous financial year. During the period PKGP produced and sold electricity for five months except for the month of March 2019, and the plant was on standby mode for the month of March due to low national demand. This was as per instructions of National Power Control Center (NPCC). Despite weaker operational performance, growth in earnings for PKGP came from lower cost of sales as top-line shrunk. Also increase in other income help lift the bottom-line.
Outlook The power company continues to face payment issues with its customer due to the rising circular debt. As on 30 June 2019, Rs18.610 billion was outstanding against CPPA-G and of these Rs1.041 billion was classified overdue. The company is reportedly pursuing the matter with the relevant authorities and ministries.
Also, it highlights in its annual report for CY18 that due to induction of new power generation plants on hydel energy, coal and RLNG at a lower price, it is expected that Pakgen will be dispatched in peak demand seasons, in case of interruption in supply of RLNG, and in low water months only.

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Pakgen Power Limited: Pattern of shareholding (31 Dec,2018)  Percentage share held

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Directors and their spouse(s) and minor children                                3.96

Associated Companies and Related Parties                                       53.63

Of which

Nishat Mills Limited                                                           27.55

Engen (Private) Limited                                                        17.33

Adamjee Insurance Company Limited                                               6.89

Security General Insurance Co Limited                                           1.72

City Schools (Pvt) Limited                                                      0.14

Banks, DFI's, NBFIs, insurance/takaful firms, modarabas & pension funds         6.66

Public sector companies                                                         1.14

Mutual Funds                                                                    8.16

Foreign companies                                                               0.66

General public                                                                  10.6

Others                                                                         15.19

Total                                                                            100

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Pakgen Power Limited

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                         1HCY19   1HCY18    YoY

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Net Sales                 6,734    9,191   -27%

Cost of sales             4,733    8,122   -42%

Gross Profit              2,001    1,069    87%

Administrative exp           95       84    13%

Other exp                     1        2   -16%

Other income                 77       19   315%

Profit from operations    1,982    1,002    98%

Finance cost                658      374    76%

Before-tax profit/loss    1,324      628   111%

Taxation                      -        -

After-tax profit/loss     1,324      628   111%

Earnings per share         3.56     1.69   111%

Gross margin              29.7%    11.6%

Operating margin          29.4%    10.9%

Net margin                19.7%     6.8%

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