Sitara Energy Limited (PSX: SEL) is incorporated in Pakistan as a public limited company. The company is engaged in the generation and distribution of electricity.
Pattern of Shareholding
As of June 30, 2024, SEL has a total of 19.092 million shares outstanding which are held by 1225 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of around 40.63 percent in SEL followed by the local general public holding 30.29 percent shares. Insurance companies account for 8.53 percent shares of SEL while Banks, DFIs, and NBFIs hold around 8.35 percent shares. Around 5.81 percent of the company’s shares are held by joint stock companies and 3.44 percent by Sitara Fabrics Limited, an associated company of SEL. Mutual funds have 2.59 percent ownership of SEL with remaining shares being held by other categories of shareholders.
Financial Performance (2019-24)
With continuous slippages since 2019, SEL’s topline posted growth only once in 2023 over the entire period under consideration. The company’s bottom line also stayed in the negative territory until 2023 with net profit posted only in 2024. SEL’s gross margin which drastically fell in 2019 greatly improved in 2020, subsided for the two subsequent years, and then considerably bounced back in 2023. In 2024, SEL’s gross margin fell again. Its operating margin registered positive figures in 2020, 2023, and 2024 with the latest year witnessing the highest level. SEL’s net margin posted a positive number only in 2024. The detailed performance review of the period under consideration is given below.
In 2019, SEL’s topline fell by a drastic 57 percent year-on-year. This was on account of the non-availability of system gas for around seven months while RLNG and RFO were available at inflated rates. This led to curtailed operations. Not only that, but the prices of system gas also surged by over 60 percent during the year while there was a very nominal Rs.0.78/kwh increase in tariff for bulk power consumers by NEPRA. Furthermore, the government also announced subsidized gas and electricity tariffs for the textile sector which formed the major consumer base of SEL. All these factors cumulatively contributed in squeezing the company’s gross profit by over 97 percent year-on-year in 2019 with GP margin falling down from 2.19 percent in 2018 to 0.13 percent in 2019. The company took intense measures to control its operating expenses. It laid off a number of employees compressing the tally from 205 employees in 2018 to 106 in 2019. This led to 20.71 percent erosion in its operating expense in 2019. SEL also disposed of its fixed assets at a loss to discharge its liabilities, resulting in a 1659 percent escalation in its other expenses. Other income couldn’t turn out to encouraging either as it dropped by over 29 percent in 2019. This was due to the fact that the company posted a gain on the disposal of its fixed assets in 2018 while in 2019; the fixed assets were sold at a loss. As a consequence, SEL posted an operating loss of Rs.36.75 million in 2019 versus operating profit of Rs.42.33 million in 2018. Finance costs mounted by 22.98 percent in 2019 on account of a hike in the discount rate. SEL also got its short-term loans restructured as long-term loans during the period with deferral mark-up to avoid the risk of default. Despite all the measures undertaken by the company to cut down on its expenses, it posted a net loss of Rs.191.811 million in 2019 versus a net loss of Rs.81.857 million incurred by the company in 2018. Loss per share also surged from Rs.4.29 in 2018 to Rs.10.05 in 2019.
In 2020, SEL’s net sales slid by 7.59 percent year-on-year as the subsidized tariff to the textile industry continued along with the high cost of fuel and irregular supply of system gas. This led to a 15 percent lower sales volume and lower capacity utilization of 8 percent achieved by the company in 2020 versus capacity utilization of 9 percent achieved in 2019 (see the graph of installed versus actual energy generation). An increase in the sales price led to a 6265.24 percent rise in gross profit in 2020 with GP margin mounting up to 8.71 percent. Operating expenses slipped by 27.17 percent year-on-year in 2020 due to austerity measures adopted by the company which particularly led to a massive drop in payroll expenses despite the increase in the number of employees to 113. Skimpy gain on the disposal of investment property in 2020 drove down other income by over 76 percent. Other expenses also shrank by 68.72 percent in 2020 as SEL incurred lesser losses on the disposal of its fixed assets in 2020 versus the previous year. All such measures enabled the company to record an operating profit of Rs.26.38 million in 2020 with an OP margin of 2.75 percent. However, finance costs turned out to be unsympathetic as they spiked by 10.5 percent in 2020 due to higher discount rates for the most part of the year and a slight increase in short-term borrowings. This led to a net loss of Rs.143.814 million in 2020, down 25 percent year-on-year. Loss per share was recorded at Rs.7.53 in 2020.
SEL’s topline registered a significant 46.5 percent year-on-year plunge in 2021. This was due to curtailed capacity utilization of 4.5 percent attained by the company during the year on account of higher international prices of RLNG and RFO which combined with Pak Rupee depreciation wreaked havoc on the cost of production of SEL. The government continued to provide subsidized gas and electricity to the export-oriented textile sector. Furthermore, the government also announced a tariff discount on incremental consumption for industrial consumers with effect from November 2020. All these factors compressed SEL’s gross profit by 72.27 percent in 2021 with GP margin plummeting to 4.52 percent. SEL was able to trim its operating expense by 15.19 percent in 2021 by cutting down its workforce by 39 employees during the year. This took down the tally to 74 employees in 2021. The company sold its fixed assets at a loss in 2021, resulting in a 76.87 percent spike in its other expenses. Other income tumbled by 66.87 percent in 2021 as unlike last year there was no gain on the disposal of investment property. As a consequence, SEL registered an operating loss of Rs.40.99 million in 2021. Monetary easing led to a 36.88 percent reduction in the company’s finance cost during the year, yet this couldn’t keep the company from posting a net loss of Rs.149.48 million in 2021, up 3.94 percent year-on-year. Loss per share climbed up to Rs.7.83 in 2021.
Conforming to the descending trend of previous years, SEL’s topline marched down by another 5.91 percent in 2022. This was on account of lower demand by Bulk Power Consumers (BPCs) due to a steep rise in tariff as the average price of RFO and RLNG exorbitantly rose up by 78 percent and 110 percent respectively during the year. However, export export-oriented textile sector continued to enjoy subsidized gas and electricity tariffs. SEL capacity utilization fell to 2.2 percent in 2022. High cost of production due to extraordinarily higher fuel charges which were further exacerbated by Pak Rupee depreciation led to 76.34 percent thinner gross profit with GP margin falling down to 1.14 percent in 2022. SEL further cut down its operating expense by 16.11 percent in 2022 as it curtailed its workforce by 8 employees to bring it down to 66 employees. Furthermore, there was an encouraging 108.88 percent rise in SEL’s other income in 2022 as there was higher rental income, scrap sales as well as greater balances written off during the year. This led to SEL recording a 25 percent lesser operating loss of Rs.30.72 million in 2022. Finance costs mounted by 15.31 percent in 2022 due to a hike in the discount rate. This was despite the fact that the company paid off a substantial portion of its loan in 2022. Net loss clocked in at Rs.154.896 million in 2022, up 3.62 percent year-on-year with a loss per share of Rs.8.11.
SEL’s topline which had been sliding down until 2022 posted a tremendous 121.37 percent year-on-year rise in 2023. Not only did the company’s capacity utilization grow from 2.2 percent in 2022 to 4.8 percent in 2023, but higher prices of RLNG and RFO coupled with Pak Rupee depreciation also led to an increase in tariff charged to BPCs. Upward revision in tariff along with lower auxiliary and line losses resulted in 791 percent year-on-year growth in SEL’s gross profit in 2023 with GP margin clocking in at 4.57 percent. Higher balances written back during the year as well as higher gain on the disposal of property, plant, and equipment translated into 264.19 percent year-on-year growth in SEL’s other income in 2023. Operating expenses posted a negligible downtick of 0.13 percent in 2023 as the company hired new employees which increased the total HR count to 75 employees in 2023. After two years of posting operating losses, SEL was able to record an operating profit of Rs.41.02 million in 2023 with an OP margin of 3.84 percent – the highest since 2018. While the company rescheduled two of its financing facilities in 2023, a higher discount rate resulted in a 15.52 percent spike in finance costs in 2023. This led to a net loss of Rs.103.282 million incurred by SEL in 2023, down 33.32 percent year-on-year. Loss per share stood at Rs.5.41 in 2023.
In 2024, SEL’s topline ticked down by 14.2 percent year-on-year due to lower demand from BPC owing to high electricity tariffs. This was on account of RFO during the year which was passed on to the consumers as higher electricity rates. This led to capacity utilization falling down to 3.4 percent in 2024. This translated into production of 23,315 megawatt hours of electricity during the year. The high price of fuel squeezed SEL’s gross profit by 85.11 percent in 2024 with GP margin drastically falling down to 0.79 percent – the lowest level recorded since 2020. Operating expenses mounted by 51 percent in 2024 due to a massive hike in depreciation recorded on investment property during the year. The company also disposed of certain investment properties during the year for the payment of its restructured credit facilities. Legal & professional charges as well as fee & subscription charges also increased during the year. Other expenses slid by 25.23 percent in 2024 as the company booked lesser provisioning for doubtful receivables during the year. What turned the fortunes around for SEL was a tremendous 553.32 percent growth recorded in other income in 2024. This was on account of the gain recorded on the disposal of investment property in 2024. Balances written off during the year and higher sales of scrap and waste also contributed to driving up SEL’s other income in 2024. Operating profit strengthened by 446 percent in 2024 with OP margin registering its highest ever level of 25.35 percent. Finance costs grew by 15 percent in 2024 due to a higher discount rate. During the year, the company also restructured its short-term loan as a long-term loan. For the first time during the period under consideration, SEL posted a net profit to the tune of Rs.41.991 million in 2024 with EPS of Rs.2.20 and NP margin of 4.58 percent.
Recent Performance (1QFY25)
During 1QFY25, SEL’s net sales registered a staggering year-on-year rise of 626.6 percent. This was due to occasional demand by BPCs. Increased demand, stability in the price of petroleum as well as the value of local currency, and heightened tariff resulted in a 61.39 percent reduction in SEL’s gross loss which stood at 6.66 million in 1QFY25. Operating expenses mounted by 85.66 percent in 1QFY25. Other income also strengthened by 480.71 percent during the period. Probably the company is following the same strategy it followed last year whereby it booked depreciation expense on its investment property which drove up its operating expense and then sold it on gain which buttressed its other income. SEL’s operating loss shrank by 42.23 percent in 1QFY25 to clock in at Rs.14.82 million. Finance costs slumped by 20.35 percent in 1QFY25 due to a lower discount rate. SEL’s net loss eroded by 25.14 percent to clock in at Rs.50.93 million in 1QFY25. This translated into a loss per share of Rs.2.67 in 1QFY25 versus a loss per share of Rs.3.56 recorded during the same period last year.
Future outlook
The profitability of SEL is highly contingent on the prices of RFO and RLNG. The company is mulling over adding a solar power plant to its overall generation mix to stay immune from rising prices of RLNG and RFO. While this may keep a check on SEL’s cost of production, it will require additional financing lines which will drive up the company’s finance cost.