Lalpir Power Limited (PSX: LPL) is part of the reputable Mansha group, which also owns other power companies including Pakgen Power Limited, Nishat Power Limited and Engen Private Limited as part of its portfolio. It was set up in 1994 to operate a 362MW oil fired power plant in Mehmood Kot, Muzaffargarh, Punjab. The plant was set up under the Energy Policy 1994 and Nichimen Japan was hired for EPC contractor. The unit has been operating since November, 1997.
Historical performance Even though LPL registered an increase in revenues from FY11 to FY13, it has subsequently witnessed its top-line take a hit in the past two years. The gross and net margins however continued to slide from FY11 to FY13 with the lowest point of the firm being FY13 in terms of profitability.
The director's report attributes this to an increase in delta loss, which it measures as grams per kWh fuel consumption. The net margin was reduced from 4.83 percent in FY11 to 1.76 percent in FY13. However, since then the company has managed to recover somewhat and its net margin has risen up to 3.85 percent.
From an EPS of Rs4.15 in FY11, the company has slid down to an EPS of Rs2.24 in FY15. While the rise in FO prices coupled with a higher load factor has indeed increased the top-line during these years, it also simultaneously chipped away at margins on account of a higher generation cost thereby resulting in a fall in the EPS.
Throughout the past five years LPL has had issues with WAPDA - which is its sole customer - over payment of dues. By the end of FY15, Rs6.68 billion was outstanding against WAPDA out of which Rs4.50 billion was classified overdue. The company has blamed this delay in payment for disruption in fuel supply which in turn affects its generation performance.
Lalpir Power Limited continued its steady performance although the top-line took a considerable hit during FY16, which might be attributable to lower furnace oil prices during the period as well as lower dispatches. The company continues to face issues with CPPA against payment of dues, which has resulted in erratic fuel supply and hence the reduced capacity factor.
Even though revenue was markedly lower as compared to the previous year, the company was able to earn a better profit margin due to a decrease in the delta loss, which meant lower fuel consumption per kWh generated.
However, like the majority of IPPs LPL has been facing the adverse impacts of circular debt and was owed Rs8.6 billion as outstanding till 31 December, 2016 out of which Rs4.24 billion was classified overdue. The rise in circular debt has affected cash flow and constrained liquidity of the majority of IPPs in the power sector and LPL has been no exception.
Snapshot FY17
FY17 saw LPL's revenue increase by 19 percent although dispatch level remained low on account of lower demand by the CPPA. However, the company's profitability margins took a slide, which the company attributed to higher delta loss or higher fuel consumption in simpler terms. At the same time, the company's outstanding receivables against CPPA increased to Rs10.7 billion out of which Rs569 million was classified as overdue.
On a positive note, LPL's position regarding non-payment of liquidated damages has been accepted by the expert appointed by the court following which the company does not have to pay any damages.
Stock performance/ Shareholding pattern
Lalpir Power Limited has outperformed the benchmark KSE-100 index since August-17. The expansion into renewables with an imminent solar power plant might garner investor interest in the future if the profitability of the company also rebounds. The majority shareholders include an 18 percent stake by Engen Pvt. Ltd, almost 29 percent by Nishat Mills Limited and 7.2 percent by Adamjee Insurance Company Limited.
Future outlook
The present government has started clearing circular debt, which is positive for power sector companies including LPL. At the start of this month, Rs53 billion was paid to power producers, of which Rs40 billion went to IPPs. Almost 120 billion is expected to be paid in "certain ways" and Rs14 billion paid in cash by the end of this month.
The company has managed to recover somewhat from its weak financial performance in the past year and diversifying into renewables is a good strategy in the long term. LPL has entered into a contract for a period of thirty years for purchase of fuel from Pakistan State Oil Company Limited (PSO).
The company has also entered into an agreement with General Electric (GE) to improve plant performance. The project aims to improve LPL's plant performance by reducing fuel losses.

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LPL: Pattern of Shareholding
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Category                                     Shares held     Percentage
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Directors and their spouse(s),childr          26,006,412           6.84
Associated Companies, undertakings and
related parties                              212,589,863          55.97
Public Sector Companies and Corporat           1,475,000           0.39
Banks,DFIs,NBFC, Insurance,
Takaful, Modarabas and Pension funds          19,882,410           5.23
Mutual Funds                                  47,199,810          12.41
General Public
a. Local                                      20,023,472           5.27
b. Foreign                                        27,363           0.01
Foreign Companies                                678,027           0.18
Others                                        51,956,375          13.68
Totals                                        379,838,732        100.00
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