Company profile:
Nishat Chunian Power Limited (NCPL) is part of the Nishat Chunian group which is a major player in the textile sector of Pakistan. Today, Nishat Chunian group consists of five companies including Nishat Chunian Limited (a textile company), Nishat Chunian Power Limited (a power generation company), Nishat Chunian Electric Corporation Ltd (a captive power generation company) and Nishat Chunian Entertainment Pvt Ltd (an entertainment company).
NCPL was established in 2007 as a power generation project with a 25 year take or pay agreement with National Transmission & Dispatch Company (NTDC). The plant started its commercial operations on July 21, 2010. The power plant is a 200 MW RFO with a net output of 195 MWh.
Historical performance
NCPL has had declining revenues for the past two years which can be attributed to the decrease in furnace oil prices. However, another factor was a lower capacity factor which has gone down from 82.5 percent in FY15 to 70 percent in 2016. This was due to lower demand from the purchaser NTDC probably because of the merit order which essentially means cheaper generation is given preference by the central purchaser. However, NCPL blames NTDC for this lower capacity factor which it cites to non-availability of fuel because of non-payment of dues by NTDC.
It is also pertinent to mention that for power plants the maintenance expenditure is higher in the later years which mean that in the initial years profit will be relatively higher. Thereby, NCPL would naturally witness a decrease in profitability in the later years due to higher O&M and maintenance costs.
However profitability margins of NCPL have been increasing in the past two years with gross margins improving from 18 percent in FY14 to 30 percent in FY16. Similarly net margins also doubled from10 percent in FY14 to 20 percent in FY16. The company has been earning an ROE of nearly 40 percent during the past three years. But the liquidity position of NCPL has been deteriorating with the current ratio in FY16 at 1.29. As with the majority of IPPs operating in the power sector NCPL also has grievances with the NTDC when it comes to delay in payments. The company noted in its director report for FY16 that as of June 30, 2016 total receivables from NTDC have increased to Rs 6.4 billion out of which Rs 3.8 billion were overdue.
Snapshot 1QFY17
NCPL has witnessed a decrease in revenue for 1QFY17 which is probably due to lower dispatches during the year. The company saw a drop in revenue of 16 percent whereas the cost sales went down by 15 percent as compared to 1QFY16. The gross profit of the company registered a decrease of 17 percent because of the drop in revenue.
The administrative expenses of NCPL rose by 6 percent as compared to the same period last year whereas other expenses also surged. But the company saw a decent influx from other income to augment its financial position which increased by almost 240 percent.
On the financing front the company was able to take advantage of the low interest rate environment to decrease its financing cost by 20 percent as compared to 1QFY16. Overall, the company registered a decrease in its bottom-line of 16 percent which translated into a decrease in EPS of 16 percent as well compared to 1QFY16. However, the net margin of the company witnessed no significant change and remained constant at 20 percent.
Stock performance and Shareholding pattern
NCPL has consistently underperformed the benchmark KSE-100 index since March 2016. However on a stand-alone basis NCPL stock has improved considerably since its low point of Rs 49.43 in June. The stock made a strong rally and touched a high of Rs 58.03 in the previous week.
As for shareholding the majority of the stock is owned by Nishat Chunian Group which has a stake of 51.07 percent in NCPL. The second major stake is owned by Allied Bank Limited (ABL) which has an interest of amounting to 8.1 percent of the total shares outstanding.
Future Outlook
The company continues to face payment issues with NTDC which has impacted its liquidity position. However, lower oil prices will have a positive impact with the company looking to arrange short term borrowing taking advantage of the low interest environment. However NCPL profitability margins continue to be impressive and the recent stock rally might be an indicator of increasing investor confidence in the company.