HUBCO in profit despite operating below capacity

Savings on account of finance expense help company boost bottom-line by 17.5%, announce healthy dividend.

KARACHI:

Pakistan’s second largest independent power producer Hub Power Company (Hubco) on Monday reported a 17.5% rise in profits to Rs10.23 billion for fiscal 2012-13 over the previous year, mainly on back of decline in finance cost, analysts said.

According to a notice sent to the Karachi Stock Exchange, the blue-chip firm also announced a final cash dividend of Rs4.5 per share which is in addition to the Rs3.5 per share already announced earlier.

Hubco saw increase in profits despite a 4.27% decline in turnover to Rs167 billion as it operated below capacity due to the crippling inter-corporate circular debt.

Part of the debt has been resolved by the government in recent weeks with the company receiving over Rs87 billion, raising prospect of future earnings.

“Rise in the bottom-line is basically due to a decrease in finance cost,” said Shahid Ali, head of research at Summit Capital. “And that was possible because the Narowal plant has been in operation. The cash flows from that project are helping to offset initial high financial expense.”



Besides the 1,200-megawatt (MW) power plant at Hub, Balochistan, the company also operates a 214MW plant at Narowal in Punjab that was commissioned in 2011. But the plant has been facing setbacks due to unavailability of funds to buy fuel.

Widely known as a safe investment because of an airtight pricing mechanism, which protects earnings of Hubco, it also benefits from rupee devaluation. Summit Capital’s Ali explains: “Under the power tariff regime, the return of the company is fixed at 15% in dollar terms. So, the higher the dollar goes, the higher the income in rupees.”

A relative slide in interest rate also contributed to ease financial costs, he said.

Hubco is also set to benefit from investment in Laraib Energy, the 84MW hydropower project – the first by the private sector.

“We expect Hubco to gain from Laraib. It’s a very good project, which will pay back the entire investment in seven to eight years. The company doesn’t have to worry about fuel supplies either,” Ali said.

Analysts are keenly waiting for information on Hubco’s plan to convert the 1,200MW furnace oil-based plant to coal under a deal with the government. The initiative, which will cost around $800 million and take two years to complete, will drastically cut the company’s fuel cost.

Published in The Express Tribune, August 20^th, 2013.

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