KAPCO: Adjustment to CPP drags earnings

August 17, 2021 (MLN): Kot Addu Power Company Limited (KAPCO) has witnessed a significant decline in its net profits by around 57% YoY to stand at Rs10.23billion (EPS: Rs11.62) during the fiscal year 2020-21 when compared to Rs23.61bn (EPS: Rs26.83) recorded in last fiscal year.

According to the financial results sent to Exchange, the net sales of the company plunged by 30% YoY to Rs50.35bn due to adjustment to the capacity purchase price (CPP) of Rs19.29bn in FY21. Resultantly, the gross profit squeezed by 76% YoY to Rs5.25bn despite a fall of 10% YoY in cost of sales.

However, the dispute of outstanding liquidity damages between the company and the Central Power Purchasing Agency has been resolved. Hence, the PPA of the company has been extended for 485 days with effect from Jun 27, 2021, a research note by Arif Habib Limited highlighted.

To recall, according to the master agreements with the government (the power purchaser), Independent Power Purchasers (IPPs) are to receive payments in two installments. The govt had completed first payment of Rs90bn whereby KAPCO received the highest amount of Rs39.6bn among other IPPs.

Going by the financial statement, lower other income (down by 36.5% YoY) amid lower interest rates and PKR appreciation during the said period are also the reason behind the decline in earnings.

Meanwhile, the finance cost of the company went down by 63% YoY on the back of lower interest rates and lower short-term borrowings, providing some cushion to the bottom line.

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