EPQL in good shape

2018 and 2019 have seen a spike in currency deprecation, which has been one key factor in determining the profitability of companies in almost all sectors – both positive and negative. The independent power producers who have dollar indexed capacity purchase price component in their revenues have benefited from the currency depreciation.

Engro Powergen Qadirpur Limited (PSX: EPQL), a subsidiary of Engro Energy Limited, formerly known as Engro Powergen Limited (EPL), has also seen its profits improved on the back of falling currency value due to the capacity purchase price component indexed to the dollar. According to some estimates, this component in total revenue has seen an increase of over 12-13 percent year-on-year in 2QCY19.

The overall increase in the top line in 1HCY19 has not been entirely due to capacity purchase price component; the gas tariffs have also increased. EPQL is a is a combined cycle power plant with 1+1+1 configuration including one gas turbine, one heat recovery system generator (HRSG), and one steam turbine and uses permeate gas as its primary fuel source with HSD as backup fuel or alternate fuel to produce electricity.

1HCY19 financial performance of EPQL has also been better due to lower expense. Where 46 percent lower administrative expenses supported the operating profits, the net earnings were further supported by a 34 percent decline in finance cost that largely entail mark-up cost on short term and long term bank borrowings.

The IPP’s earning has been increasing steadily over the years. CY18 financial performance however was impacted by the supply disruptions on account of gas supplier’s compressor issues that resulted in lower load factors for the company. And while the earnings seem to have come back on track, a few headwinds for EPQL include the issue of receivables and payables. The overdue from NTDC. As on December 31, 2018, these receivables stood at Rs6,133 million, up by 43 percent on a year-on-year basis. Also its payables to SNGPL stood at Rs3,605 million. Due to the liquidity crunch the company has not been paying dividends. However, the latest quarter (2QCY19) saw resumption in dividend announcement.

The IPP has also started facing gas curtailment from Qadirpur gas field as it continues to deplete. But since the IPP is a combined cycle power plant, it has been producing electricity on mixed mode with gas and HSD since September 2018.  While this has saved the company in the short term, EPQL has also been looking for alternate fuel not only because HSD is an expensive fuel for power production, but because under its implementation agreement with the power purchaser, it is allowed one-time conversion to that alternate fuel.