Pakistan’s largest independent power producer (IPP), Kot Addu Power Company (KAPCO), is scheduled to announce its second quarter (2QFY16) financial results on 23rd February 2016. The Company is expected to post profit after tax of Rs2.6 billion (EPS: Rs2.94) for 2QFY16, showcasing muted growth of 7%YoY taking 1HFY16 cumulative profits to Rs4.7 billion (EPS: Rs5.34). The Board of Directors is also expected to approve payment of an interim dividend of Rs4/share, where upside may stem from improved liquidity.
Earnings are likely to be a function of: 1) load factor of 57% as compared to 61% for the corresponding period year, 2) increased generation on gas (18.7% of units generated as compared to 5.5%) allowing for higher efficiency coupled with O&M savings and 3) drastic (68%YoY) dip in finance charges in part due to falling cost of borrowing, and lower working capital requirements from falling input costs.
Assessing the heavily regulated and GoP reliant nature of the Power sector, KAPCO bears risks in the form of: 1) liquidity concerns hampering payouts as the company had a negative spread on receivables as compared to payables, relying on short term loans to fill the gap, 2) mechanism for generation on LNG yet to be sorted, with standby letters of credit a possible roadblock and 3) delay in planned privatization due to the process being devoid of technically sound sponsors.