Corporate results: Nishat to bid for 590MW hydropower project

Diversified group also investing Rs400m in hospitality business.

KARACHI:

The Nishat group on Wednesday said it will participate in the bidding for construction of a 590-megawatt hydroelectric power project as one of Pakistan’s biggest conglomerates consolidates its position in the most challenging and rewarding energy sector.

The announcement came along with fiscal year 2013 financial results of Nishat Mills Limited, which declared a consolidated profit of Rs9.875 billion.

Nishat Mills, which is backed by investments in MCB Bank, has decided to invest Rs400 million in a wholly-owned subsidiary, Nishat Hospitality Private Limited, the announcement said.



Hospitality is a new diversification for the group in Pakistan. Initially, it plans to open a four-star hotel in Lahore, analysts said with many wondering about the reasons behind the investment when existing hotels are complaining about falling room occupancy.

“I am not amazed by Nishat’s decision. It already runs power plants of substantial capacity,” said Javed Mehmood, former CEO of Hub Power Company, which runs an 80MW hydropower project, the first-of-its-kind in the country.

“This will require an investment of at least $1.5 billion and most of it will be coming from banks. The capital cost of a hydropower plant is high but the ultimate benefit to investors and the country is huge,” he said.

The Mahal Hydropower Project will be located on the border of Punjab and Azad Jammu and Kashmir on Jhelum River. It will be the largest non-petroleum power project to be undertaken in the private sector.

But progress has been slow as the project was initially conceived in 2008. Industry officials say Nishat’s involvement will add credibility to the project.

Mehmood said hydropower was not affected by the crippling inter-corporate debt, which hurt investment in power plants run on oil and gas.

“Despite all that is happening in Pakistan, we offer some of the best returns,” he said, adding internal rate of return on hydropower projects is between 16-17%, one of the highest in the region.

Hubco’s 80MW hydroelectric power complex started commercial production earlier this year.

Summit Capital Head of Research Shahid Ali said Nishat wouldn’t face problems in wooing investors into the project. “Itself the group is sitting on a lot of cash. It has companies like MCB Bank and Adamjee Insurance to back its initiatives.”

Ali said Nishat Group Chairman Mian Mansha takes a long-term view on investments. “That is one reason he doesn’t pay dividends.”

Nishat results

The consolidated profit of Nishat Mills Limited (NML), which includes earnings from associated companies, surged 101% to Rs9.875 billion.

As a standalone textile business, NML posted a 39% increase in profit to Rs5.8 billion that was helped by rupee depreciation and better sales.

“Nishat earns the most from export of finished textile to European and US markets,” said Ali of Summit Capital. “It was also able to buy cotton at better prices as the management is efficient in this area.”

An expanding demand for yarn from China has also helped earnings of NML, analysts say. The impact of EU’s Autonomous Trade Preference system, which was granted to Pakistani textile manufacturers in November 2012, is also obvious.

Importantly, NML’s earnings are expected to go up further in 2014 after implementation of GSP Plus status, which allows duty-free textile exports to the EU.

Published in The Express Tribune, September 26^th, 2013.

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