Hub Power Company Limited (PSX: HUBC) is an independent power producer (IPP) that has around 1600MW combined installed capacity from its 3 plants. It owns an RFO-fired power station of 1,200 MW in Balochistan, at Hub, which is its base plant. It also owns a 214 MW combined cycle RFO-fired power station in Narowal, Punjab, and also holds 75 percent controlling interest in Laraib Energy Limited, which owns and operates a run-off-the-river hydel power plant near Mangla Dam in AJK.
Against the backdrop of shift in the fuel for power generation from FO to coal and LNG, HUBC ventured into the coal business and established wholly owned subsidiaries to launch new initiatives. HUBC owns 47.5 percent shares of newly commissioned 1320MW imported coal based China Power Hub Generation Company (Private) Limited (CPHGC) at Hub. The company is the only power producer in Pakistan with four projects listed in the China Pakistan Economic Corridor (CPEC) including CPHGC, Sindh Engro Coal Mining Company (SECMC) and the upcoming Thar Energy Limited (TEL) and ThalNova Power Thar (Pvt.) Ltd. (TNPTL) at Thar Block II. The power generation capacity oh HUBC will enhance to over 3580MW after completion of these power projects.
Shareholding pattern
HUBC's share ownership has changed hands several times. Dawood Hercules was a major shareholder of HUBC since 2012 when the IPP's initial sponsors Xenel International and National Power International exited from their shareholdings and Dawood Hercules Corporation and its affiliates bought most of this given up shareholding. Then in 2018, Mega Conglomerate acquired a substantial shareholding in Hub Power Company from Dawood Hercules and Cyan Limited to become the largest shareholder of the company.
According to company's website, Mega Conglomerate is a diversified conglomerate with business holdings including the country's largest container terminal, third largest dairy producer, top tier cement manufacturing company, vertically integrated shipping company and a progressive real-estate developer. By the end of FY19, Mega Conglomerate owned approximately 20 percent shareholding in HUBC according to annual accounts. The breakup of the shareholding is shown in the illustration.
Previous performance InFY15, Hub's base plant maintained an uninterrupted power supply to the national grid, whereas the slight decrease in load factors came from a decrease in generation, caused by maintenance work on the boilers. The Narowal plant too witnessed a decrease in load factor in the fiscal year due to restriction imposed by the National Power Control Center. Its hydel power plant, Laraib had a higher capacity utilisation in FY15 due to better hydrology received from Mangla Power Plant and significant reduction in the number of annual maintenance days.
In FY16, the Hub plant's load factors improved as electricity generation during the year was higher due to higher availability and utilisation by the power purchaser. Growth plans and revamping activity in the last year or so affected earning that improved a bit in FY16 when the power company decided to outsource O&M services to Hub Power Services.
However, the consolidated earnings in FY17 came down significantly. The decrease in consolidated earnings as reported in the company's annual accounts was mainly due to higher repair and maintenance expenditure on the Hub Plant and 36,000 running hours' major maintenance of six engines at Narowal Plant, lower exchange rate and higher losses of TEL and CPHGC projects that had been initiated. Apart from that, higher general and administrative expenses and lower other income also affected the bottom-line in FY17 that fell by 9.2 percent year-on-year.
HUBC's posted slight improvement in earnings for FY18 despite a slight dip in revenues. The consolidated earnings grew by three percent year-on-year in FY18. The modest growth in earnings was driven by lower repair and maintenance expenditure at Hub and Narowal Plants.
However, these were partially offset by lower profits of Laraib, higher financing costs and administrative expenses. In FY18, HUBC's base plant at Hub witnessed a drop in load factors from 65 percent to 49.5 percent due to lower electricity demand from the power purchaser. The Narowal plant also witnessed a decrease in load factors from 71 percent to 64 percent in FY18, which was due to the overhaul of three engines and seven alternators at Narowal plant.
FY9 Financial performance During FY19, the country's power generation from furnace oil declined by 60 percent year-on-year, where its share in total power generation was only 7 percent in FY19 versus19 percent in FY18. As a result, IPPs that run on fuel oil witnessed a further decline in the load factors. HUBC's load factors for its base plant plunged from 49 percent to just at 7.87 percent due to no generation on FO.
As a result, HUBC's revenues were seen shrinking by 42 percent year-on-year due to lower electricity dispatches to the power purchaser despite significant currency depreciation that lifts the price component of the revenues. While its base plant at Hub operated at about only 7.87 percent of its capacity, the load factors for its other plant at Narowal and Laraib (hydel) were also lower.
Lower generation resulted in lower operating costs and hence HUBC saw an 18 percent year-on-year improvement in its gross profits, and hence gross margins doubled due to lower base/denominator. However, the company's bottom-line posted a flattish growth of only 2 percent year-on-year, and apart from slow growth in revenues, the restriction in earnings came from higher finance cost due to higher interest rates and higher capital expenditure largely coming from coal investments. This was also the reason why it has been skipping dividend announcements. Moreover, the cash it received from the first Energy Suck was used to pay off PSO's payables.
Outlook HUBC continued to witness a decline in its consolidated revenues, which was due to lower power generation at its base plant at Hub. Lower load factor of the main plant at Hub also meant lower operating costs, which along with currency depreciation was the main factor behind better gross profit in 1QFY20.
The company's consolidated earnings growth was also assisted by the share of profits from China Power Hub Generation Company that commissioned the 2x660MW coal power plants in August. HUBC's consolidated earnings were impacted by twice the increase in finance cost due to the increase in financing the capex.
The company is banking on its coal investments to reverse the trend of falling revenues. HUBC in the 1QFY20 made the adjustment particularly to address the FO crisis by uplifting the company's equity from 26 percent to 47.5 percent in CPHGC through rights issue in FY19 and achieved COD first quarter 2020 creating, thus creating a new stream for revenues.
It also took management control by taking 38.3 percent of ThalNova, which is a project identical to TharEnergy. This not only led to cost optimisation, but also creates an opportunity for HUBC to expand revenue base with several inter-aligned services on both these coal projects in Thar. HUBC's lignite based 330MW Thar Energy Limited Project in Thar Block II has completed 37 percent of construction and is targeting to achieve COD by the end of March 2021.
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HUBC - Key Projects at a Glance
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Net Capacity
Projects Stake Fuel Type (MW)
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Hub Plant 100% FO 1292
NEL 100% FO 225
LEL 75% Hydro 84
CPHPGC 46% Coal 2x660
TEL (SECMC) 60% Coal 1x300
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Source: Annual Accounts
====================================================== The Hub Power Company Limited ====================================================== Shareholding Pattern as at June 30, 2019 percentage ====================================================== Individuals Local 14.28% Foreign 0.13% Joint Stock Companies 3.02% Financial Institutions 23.99% Investment Companies 1.71% Insurance Companies 6.87% Associated Companies 20.30% Directors 9 0.16% Executives 0.02% NIT & ICP 0.41% Modaraba/Mutual Fund & Leasing Companies 13.52% Others-Government of Balochistan 0.03% Others-GDR Depository 0.78% Others-Charitable Trusts 9.69% Others-Cooperative Societies 0.10% Others-Provident/Pension/Gratuity Fund etc 4.99% MEGA CONGLOMERATE (PVT.) LIMITED 19.5% ALLIED BANK LIMITED 9.7% COMMITTEE OF ADMIN. FAUJI FOUNDATION 8.5% ======================================================
Source: Company Accounts
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Hub Power Company Limited (Consolidated)
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Rs(mn) 1QFY20 1QFY19 YoY
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Turnover 14,081 17,989 -22%
Operating costs 6,590 13,151 -50%
Gross profit 7,491 4,838 55%
General and administration expenses 449 314 43%
Other income 68 51 34%
Other operating expenses 23 1 1986%
Profit from operations 7,088 4,574 55%
Finance costs 3,059 1,322 131%
Share of profit/(loss) from associates 1,873 (61)
Profit for the period 5,823 3,124 86%
EPS (Rs/share) 4.29 2.47 74%
Owners of holding company 5,568 2,960 88%
Non controlling interest 255 164 56%
5,823 3,124 86%
Gross margin 53.2% 26.9%
Net margin 41.4% 17.4%
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Source: PSX
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