Kapco profits decline 17%

Financial charges stand higher than bottom-line.

KARACHI: Kot Addu Power Company’s (Kapco) profits have declined 17% to Rs4.36 billion in the current financial year so far as cash flows shrink for the entire energy sector mostly due to the circular debt.

The country’s second largest power producer’s electricity generation has declined considerably in the last two year due to unavailability of gas and short supply of fuel from Pakistan State Oil (PSO).

The result is in line with market expectation as analysts on average expected a profit of Rs4.24 billion. Shares of Kapco rose Rs0.21 to close at Rs43.77 during trade at the Karachi Stock Exchange.

Finance cost – another crippler of the company’s performance – rose 24% to Rs7.82 billion in the first nine months of fiscal 2012 against Rs6.29 billion in the same period a year ago.

Financial charges were slightly lower than estimates, due to payment to Pakistan State Oil through the circular debt’s Term Finance Certificate issue, said IGI Securities analyst Sana Abdullah. Banks earlier this year agreed to buy Rs150 billion worth of Term Finance Certificates (TFCs) to bring down the circular debt.

However, receivables from Water and Power Development Authority are likely to have swelled again to approximately Rs50 billion, from which Kapco gets a 16% interest annually.

The power producer has partly replaced its expensive credit from fuel supplier PSO (T-bill +6%) with borrowing from banks at lower rates (Kibor +2.75%), some respite could be witnessed in the shape of lower financial charges in the final quarter of the financial year, added Abdullah.  The company did not announce any cash dividend along with its nine month result. The company is expected to payout another Rs2.75 per share along with its final result to take its total cash payout for to Rs6.5 per share for financial year 2012.

Published in The Express Tribune, April 18^th, 2012.