Nishat Power Ltd. (NPL) held its Analyst Briefing Session today to discuss the financial performance of the company and the recently signed MoUs with the Government of Pakistan.
NPL posted FY20 NPAT of PKR4.9bn (EPS: PKR13.96) up 31%yoy. This was led by (i) higher US$ indexation (eg. KIBOR, US$, CPI etc) and increase in delayed payment markup revenue by approximately PKR900mn. Results were accompanied with final cash dividend of PKR1.0/sh taking the full year payout to PKR2.0/sh.
NPL’s capacity utilization dropped to 16% in FY20 from a peak of 82% in FY15 (and vs. 39% in FY19). This was led by reliance on expensive furnace oil based generation, which is being replaced by low cost energy (coal, RLNG, hydel). However, NPL continues to operate at 40% utilization during peak demand in summer months (May-August period).
Payouts have been affected by substantial rise in receivables to PKR18.8bn (PKR15.8bn are overdue), while receipts from the power purchaser NTDC have reduced from PKR4.4bn/quarter to PKR3.2bn/quarter. Payout ratio has dropped from 75% in 2016 to 14% in 2020. Recent Energy Sukuk II issuance has eased some pressure where ST borrowings have reduced to PKR4.8bn from PKR6.4bn in 2019.
Capacity receivables worth PKR816mn have been withheld by NTDC as disputed amount and are expected to be recovered through international arbitration. Moreover, NPL has received a favorable verdict in July 2020 on late payment invoices worth PKR1bn through the International Arbitration Court and will recognize the income once received.
The management has created a capital reserve of PKR3bn out of its retained earnings for major maintenance expense of the plant in the coming years. This will not be available for distribution of payouts. NPL’s LTFF has been retired in June 2020, where the management may opt for a loan incase its maintenance reserve is utilized.
NPL has formally agreed on the terms signed in the recent MoUs for 2002 Power Policy plants; however, timeline and schedule of receipts are yet to be determined. NPL hopes to convert accounting profits to cash flows where structural reforms are expected to improve the liquidity of the sector.
The management hopes to become only slightly less profitable in a competitive trading arrangement. NPL has conducted exercises on ROEs, O&Ms and fuel sharing alongside declining plant utilization from single wire market to multiple wire merchant market. NPL expects to remain relevant to NTDC due to its plant technology, fuel flexibility and most importantly its proximity to Lahore and position on the 132Kv transmission lines to the national grid. The tariff under competitive power market will be newly constructed.
NPL can opt for conversion to coal or LNG but so far has not done any working on it.
The management clarified that all invoices billed by NPL were booked as per the PPA. Any claims on excess profits have been disputed. (IMS Research)