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Power Sector – Glorying in Energy Sukuk ll Payments?

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July 28, 2020 (MLN): The financial results of the power sector are all set to uncover in the next few weeks, with several brokerage houses anticipating a positive outcome for most of the companies on the back of PKR devaluation, the commencement of CHPGC, and higher non-core income owing to inflated receivables.

According to a research note published by Insight Securities, the revenue of the sector is likely to increase owing to better plant routine, which in turn is an outcome of seasonal demand uptick and better placement on merit list along with inflated late payment surcharge. Nonetheless, the impact of the reduction in electricity generation by most of the RFO plants due to historical hydel/coal generation on the sector’s overall revenue cannot be overlooked.   

The biggest highlight for the power sector during the quarter ended June 30, 2020, was the much-awaited Energy Sukuk ll payments that amounted to almost Rs. 200 billion. Out of this total payment, around Rs. 17.2 billion was received by the sector, with KAPCO getting the major chunk of it due to its EPP, followed by Rs. 1.9 billion received by Laraib Energy Limited i.e. the subsidiary of HUBC. The report suggests that these payments are likely to ease the liquidity issues of the power industry and might also lead to dividend payments by most of the companies.

HUBC is not only expected to overtake its counterparts but also post its highest-ever earnings due to the allocation of share of its associate CPHGC. The upliftment in earnings, which Insight Securities believes to be by 237%, is also expected on the back of Sukuk Payments of Rs. 2 billion and Rs. 618 million received by the company’s subsidiaries, Laraib Energy Limited and Narowal Energy Limited, respectively. However, the loan taken to finance the project as well as working capital constraints is likely to shoot the finance cost up by a substantial margin.  

KAPCO is expected to follow the lead with anticipations of around 185% increase in earnings during the quarter. This projection has been backed by the Rs. 11 billion received from Energy Sukuk ll in respect of its EPP, as stated earlier. PKR depreciation and an increase in non-core income are some of the other factors that are likely to improve the financial standing of the company. However, the company might see a decline in its sales revenue by almost a half due to lower dispatches as well as a drop in RLNG prices. Unlike its competitors, KAPCO might see a decline in its finance cost due to lower short term borrowings witnessed during the quarter.  

Lastly, NPL and NCPL are likely to witness a surge of 139% and 130% in their earnings, respectively. This expectation is again, backed by the Sukuk payments of Rs. 1.6 billion and Rs. 1.4 billion received by both companies. The increase in the earnings of NPL can be attributed to factors such as rupee depreciation, however, a decline in sales due to lower dispatches will limit the scope of an increase in profits for the company. The finance cost of the company is likely to go up due to an increase in short-term borrowings.

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Posted on: 2020-07-28T14:12:00+05:00

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