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Pakgen Power Limited (PSX: PKGP) was incorporated in 1995 with the registered head office based out of Lahore. The company originally started its commercial operations in February 1998. The principal activities of the power company are to own, operate and maintain an oil fired power station having gross capacity of 365 MW in Mehmood Kot, Muzaffargarh, Punjab, Pakistan.

The firm was formerly known as AES Pak Gen Company Limited. Subsequently, the name was Pakgen Power Limited in November 2010 after it was acquired by a consortium of Pakistani businessmen comprising of Nishat Mills Limited, Adamjee Insurance Company Limited, Security General Insurance Company Limited, Mian Hassan Mansha, City School Group and Abu Dhabi Investment Council. The company under the new management was converted from a private unlimited liability company to a public listed company in July 2010.

Major shareholders of the company as on December 31, 2015 include Nishat Mills Limited (27.55 percent), Engen (Private) Limited (17.33 percent) and Adamjee Insurance Company Limited (6.89 percent). The electricity generated is purchased by WAPDA under the Power Purchase Agreement (PPA) executed with the company on September 05, 1995, which is valid for a period of 30 years

PKGP Investments In 2015, PKGP approved investment in Lalpir Solar Power (Private) Limited, a wholly owned subsidiary of Nishat Power Limited, for over 20 percent equity shareholding. The purpose disclosed was to earn dividend income as well as prospective capital gains.

The principal activity of LSPL will be to build, own, operate and maintain or invest in a solar power project having gross capacity up to 20 MW with net estimated generation capacity of approximately 19 MW at project site located at Mehmood Kot, Dist. Muzaffar Garh.

Financial and operational performance Financial performance of Pakgen Power Limited in FY15 was reflective of increased profitability and higher margins. However, FY15 saw revenues take a severe fall. The net sales in FY15 were down by 81 percent, and this was primarily due to lower dispatch levels of only 8 percent compared to 63 percent in FY15, and an average of around 60 percent in the last five years.

This loss in dispatch level was due to the failure of main station transformer, which was shifted to WAPDA transformers' repair workshop for inspection and repair where it was reported as non-repairable. Hence, the company had to import the new transformer, which became operational in January 2016. In addition, the company cited payment issues with WAPDA, which resulted in irregular supply of fuel, affecting plant operations.

Because of low dispatch levels, WAPDA has raised invoices for liquidated damages to the company However, the firm is of the view that since technically the plant was available to deliver electricity as per WAPDA's requirement, and the failure to deliver was only to financial constrains caused by default in payments by WAPDA, WAPDA cannot claim the liquidate damages.

Looking at the company's historical performance, the situation was opposite with revenues increasing but margins shrinking due to higher cost on fuel consumption. PKGP's financial performance for FY13 continued to show the decrease in net margins even though the firm's revenues witnessed a growth of 12 percent year-on-year. The trend of decreasing margins continued in FY14.

In FY16 Pakgen Power Limited recovered considerably from its dismal performance in the year and posted better results for the year. The company witnessed a massive increase in revenues of 120 percent due to increased dispatches with a corresponding increase in cost of sales of 93 percent as compared to the previous period. The increased dispatches were due to resumption of plant operations on January 29, 2016 after a long interruption as a result of Generator Stepup Transformer (GSU) failure on February 7, 2015 as mentioned above.

Consequently, the company dispatched 1,724,000 MWH of electricity as compared with 245,200 MWH dispatched during the corresponding nine months of the previous financial year with a capacity factor of 52.5 percent in FY16. The company witnessed an increase in administrative expenditure whereas other expenses also went up by almost double. The company's financing cost also increased which might have been to invest in the solar project by Lalpir Solar Power Limited (LSPL) which is also a member of the Nishat group. The net margin of the company also saw a positive trend reversing its previous year's low performance.

1QFY17 Snapshot PKGP dispatched 373 MWH compared to 330 MWH in the previous comparable period which meant a capacity factor of 61.8 percent in 1QFY17 against 43.2 percent in 1QFY16. The highlight of the quarter was the demand by PKGP of the government to make payment of Rs 7.78 billion against the sovereign guarantee. However, the government rejected the guarantee call and the CPPA issued a dispute notice pertaining to all invoices of the PKGP. The company challenged the decision in the Lahore High Court and has been granted a stay order.

Stock performance PKGP started the year slightly trailing the benchmark KSE-100 index and the trend continued till November 2016. However, starting from December, 2016 the stock has underperformed the KSE-100 index by a considerable margin, which has grown in the wake of the recent political noise that has impacted stocks across the board. Although company fundamentals indicate a positive year ahead for the company, overall market sentiment will eventually direct the price trajectory of PKGP in the near to medium term.

Outlook The issue of non-payment of dues is a potential threat to the long-term liquidity of the company and rising circular debt might be a problem. On the flip side, PKGP has been granted approval for coal conversion of its existing plant, which will have positive implications for the company in the future.

Also, another key project that the firm highlights is iWater. This project is commissioned at LalPir. It has been replicated at Pakgen in CY16. In this project, VVVF will be installed on cooling tower fans and some of the pumps in BOP area. The project has a potential of Rs 70 million per annum savings with a pay back of three years.





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Pakgen Power Limited: Pattern Percentage

of shareholding (31 Dec,2016) share held

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Directors, CEO & their spouse/minor children 3.93

Associated Companies and Related Parties Of which 69.3

Nishat Mills Limited 27.55

Engen (Private) Limited 17.33

Adamjee Insurance Company Limited 6.89

Masood Fabrics Limited 5.62

Banks, DFI's, NBFIs, insurance/takaful

firms, modarabas & pension Funds 7.52

Public sector companies 1.03

Mutual Funds 1.56

Foreign investors 1.46

General public 8.71

Others 6.44

Total 100

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Source: Company accounts



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