The principal activities of Hub Power Company Limited (HUBCO) are to own, operate and maintain an oil-fired power station with a net capacity of 1,200 MW. The plant is located at the Hub river estuary in Balochistan.
Water and Power Development Authority (Wapda) is the major consumer of the power generation business of HUBCO. The Hub Power Company is listed on Karachi, Lahore, Islamabad and Luxembourg stock exchanges and has the largest market capitalization of any private company in Pakistan. HUBCO has over 17,000 Pakistani and international shareholders.
In the year 2006, the Hub Power Company Limited adopted a new motto - growth through energy. This evolution marks the change from being a partner of the government and the people of Pakistan working for the progress of the country through producing and supplying the electricity, to becoming a company that seeks to enhance its contribution to growth. This is done through production of even more energy to feed a burgeoning demand.

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COMPANY SNAPSHOT
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Company Name                  HUB POWER COMPANY LIMITED
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Business             Utilities- Electric Power Supplier
Ticker Symbol                                      HUBC
Market Capitalization                 Rs 36,450,363,191
Earnings per Share                              Rs 3.27
Average Share Price                            Rs 22.11
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RECENT RESULTS 2001 Q 2010
During the review period, the Hub plant operated at an average load factor of 75.9 and an average complex availability (ACA) of 83%. Electricity sold to Wapda was 2011 GWh. Turnover for the quarter was Rs 22,005 million (2008: Rs 28,115 million) and operating costs were Rs 20,491 million (2008: Rs 26,792 million). The decrease in turnover and operating costs is mainly attributable to lower fuel oil prices. The company earned a net profit of Rs 1,108 million during the quarter resulting in earnings per share of Rs 0.96 compared to a net profit of Rs 702 million and earnings per share of Rs 0.61 in the corresponding quarter last year. The increase in profit is mainly because of currency devaluation and higher tariff profile.
In its second tranche of the circular debt settlement of the Wapda outstanding by the government of Pakistan, Hubco received a total amount of Rs 28.399 billion of which Rs 26.938 billion was immediately paid to PSO. As of 30th September 2010 an amount of Rs 31 billion is outstanding against Wapda and HUBCO in turn, owes Rs 29 billion to PSO. The Wapda outstanding has also resulted in HUBCO having to maintain its running finance facility of Rs 7.5 billion. Short-term debt has increased, because of circular debt as well as Narowal project, which will increase the financial charges in the future.
FINANCIAL PERFORMANCE
Sales of the company have been increasing steadily over the time since 2005. In FY09, it registered an increase of 33% from Rs 62 million to Rs 83 million. This increase was mainly attributed to currency devaluation, bonus generation and higher tariff profile. The plant continued to supply reliable and uninterrupted electricity and during the year, the company was able to supply 8,257 GWh, which is a record for the company.
Profitability ratios have been on the decline and remain low in comparison to the earlier years 2002-05. Gross profit margin, net profit margin and return on assets remained unchanged in FY09 at 7.36%, 4.57% and 4.19%. Return on common equity increased to 12.80% in FY09 from 9.13% in FY08. This increase is mainly on the back of 45% increase in the net profit of the company for FY09.
It is noteworthy that the financial expenses rose by 7 percent to Rs 2bn; led by higher short-term borrowing. However, mark-up on Wapda's overdue receivables somehow mitigated the impact of higher financial charges.
During FY09, the company availed a long-term loan of Rs 5bn for Narowal project, which was partly used to pay off short-term borrowings. It was believed that higher dividend payout depicts a management optimism of resolution of circular debt by the end of August 2009. The current ratio of the company has been on the decline since FY05. In FY09, the ratio remained unchanged at 1.03. The 81% increase in the current assets was offset by 83% increase in current liabilities. Wapda's liquidity problems remain in spite of the federal government's circular debt mechanism in March 2009 by which Hubco received Rs 35 billion of which Rs 31 billion were immediately paid to PSO.
Debt to asset rose from 54.6% in June 2008 to 67.3% in FY09. The reason for this increase was the rise in current liabilities owing mainly to the rise in trade and other payables by 274%. Finance cost was higher by 7% for the financial year 2009 when compared against the corresponding period last year 2008. Times Interest Earned ratio rose slightly 2.81 in FY09 as against 2.32 in FY08 long term debt to equity to 38.54% in FY09 from 25.66% in FY08. This was at the back of 56% increase of long-term loans. The company is leaning towards more leveraged financing and with the unresolved issue of circular debt this could be a cause of concern for future profitability.
Pakistan's economy suffered major credit crunch during the period FY09, especially banks faced difficult times hence many businesses had to face an expensive lending situation. Inventory turnover was higher because of the stock of oil and higher trade debts owed by Wapda. Day sales outstanding rose drastically by 41% from 143 days in FY08 to 203 days in FY09. This resulted in longer operating cycle for the company, meaning that it took the company 214 days in FY09 to convert its raw material into cash from sales as compared to 152 days in FY08. Earnings per share improved to Rs 3.27 in FY09 from Rs 2.25 in FY08. The company also announced Rs 2 per share cash dividend with the results taking cumulative dividend to Rs 3.35/share for FY09 (payout ratio stood at 102%). A fairly stable dividend stream is expected the issue of circular debt is reduced in the near future.
FUTURE OUTLOOK
HUBCO's 220MWs Narowal oil-fired power project achieved financial closure in March 2009, while, hydro project ie Laraib Energy of 84MW (subsidiary of Hubco) completed by September 2009. According to company estimates, the Narowal project is expected to come online by March 31, 2010. The company entered into Power Purchase Agreement for 25 years on November 20, 2008, with Wapda. The estimated total project cost is $285m with a debt to equity ratio of 70:30. The entire debt has been funded locally.
On the other hand, the Power Purchase Agreement (PPA) of Laraib Power plant has been initiated and the amended tariff has been approved by ECC at Rs 6.84/kWh. Hubco has 75pc equity interest in this project. The company is financing the project injection through local banks and International financial institutions. Moreover, the O&M agreement with International Power Global Development has been renewed for further 12 years.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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