The Karachi Electric Supply Company (KESC) continues to have a good year, with revenues and profits up sharply in the third quarter of financial year 2013.
According to a statement sent by the company to the Karachi Stock Exchange, KESC saw its revenues increase by 28.3% to Rs136 billion during the first nine months of the financial year ending June 30, 2013. Net income, meanwhile, swung to a Rs4.6 billion profit during that period, compared a Rs5 billion loss in the same period last year.
KESC is the only integrated utility in Pakistan, owning its power generation, transmission and distribution networks. It is also the only company in the power distribution business to be privately owned, with management control currently in the hands of Abraaj Capital, the Dubai-based private equity firm founded by Arif Naqvi, a former Karachiite himself.
Abraaj’s turnaround strategy for KESC has involved trying to reduce its cost of generating power while also ensuring that the unsustainably high transmission losses (mostly due to theft) are reduced. For the past four years, the company has been providing an incentive to neighbourhoods to self-police against electricity theft by reducing or even eliminating power cuts to areas with negligible theft.
As a result of this strategy, while most of the rest of the country struggles with several hours of power outages, Karachi has largely been spared the worst of the energy crisis. About 46% of Karachi’s area is now not affected by power outages at all, including virtually all of the industrial estates in the city, according to KESC officials.
As a result, KSE’s line losses have continued to decrease, causing a significant improvement in the company’s cash flows. Earnings before interest, taxes, depreciation and amortisation (Ebitda) nearly quadrupled during the first nine months of fiscal 2013 to Rs19.2 billion.
It is not yet clear, however, if KESC will be able to meet its stated target of a net income of just over Rs12 billion for the current financial year with just one quarter to go. Nonetheless, the company’s success in turning around its operations has engendered a significant amount of goodwill amongst investors. At Friday’s closing price of Rs5.66 per share, KESC is currently trading at 12.4 times the past four quarters’ earnings, a slight premium over the market’s average PE ratio.
Published in The Express Tribune, April 27th, 2013.
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