SNGPL: Investors grab the wrong end of the stick!

April 23, 2019 (MLN): Sui Northern Gas Company Limited (SNGP) recently announced its financial earnings result for the year ended June 30, 2018, according to which the Profit after Tax of the company was recorded at Rs. 11.1 billion (EPS: Rs. 17.54), indicating an improvement of 29% as compared to the prior year. 

Within the same report was an opinion by the Company’s auditors, A.F Ferguson & Co., regarding the ‘Take or Pay’ amounts booked by the Company in its revenue requirement.

The statement by the auditors said that the Company had recognized an aggregate net revenue of Rs. 17,178 million on account of ‘Take or Pay’ arrangements with certain consumers. However, these amounts were disagreed and disputed by the said consumers.

As a result of this, the matter was referred to an Expert for determination under the dispute resolution mechanism specified in the respective Gas Sales Agreement.

“Considering the nature of the issues involved and that the matter is pending decision of the Expert, it is not possible to determine at this stage, the associated economic benefits that may flow to the entity” the statement added.

However, investors seem to have reacted negatively to the Qualification given by the Auditors regarding the amounts booked by the Company in its revenue requirement. The result itself had clarified that even in the case of an adverse decision, the impact on the company’s profits shall be immaterial due to the guaranteed return available under fixed rate regime.

The item in question pertains to revenue, and is therefore part of the deferral account, not the profit and loss account. So even if SNGP is held not entitled to the said amount, the only consequence on the Profit shall only be to the extent of UFG booked on this account which would be a negligible amount.

Copyright Mettis Link News