KEL: Reduce T&D loses jacked up bottom-line



After posting encouraging result for the period ended FY14, KEL held its analyst briefing to discuss domains of improvement and its future plans. KEL posted FY14 NPAT of PkR12.89bn (EPS: PkR0.47) against NPAT of PkR6.61bn (EPS: PkR0.25) up 89%YoY, driven by saving in T&D losses and improved fleet efficiency. The result was accompanied by cash dividend of PkR0.525/share for minority shareholders, which is contingent on wavier from majority share holders. The company has shown its commitment to reduce T&D losses along with improvement in its fleet efficiency which is the key earning driver for the company.

Going forward, KEL is planning to invest US$300-400mn to improve its transmission and distribution network. Meanwhile, company intends to convert high cost debt into cheaper one by issuing sukuk (as done successfully in FY14).


Improved margins on the back of lower T&D losses:
Gross margins improved by 2ppsYoY to 17% amid lower T&D losses and improved fleet efficiency. The topline of the company showed mere growth of 3% on the back of increased electricity prices along with dismal increase in dispacthes to stand at PkR195bn in FY14 against PkR189bn during FY13.b Company’s strategy of managing load shedding on the basis of T&D losses (known as “Reward Recovery”) along with capex on transmission and distribution system resulted in reduction of 2.5% in T&D losses. During the year fleet efficiency was increased to 38% as compared to 37% a year earlier. Other income witnessed surge of 21% to clock at PkR6bn as a result of higher receivables.

 K-ElectricReplacing high cost debt with the cheaper one:
Company had successfully issued sukuks of PkR6bn during the period which helped it to replace higher coupon paying debt of ADB and IFC. Subsequently, finance cost was reduced by 19%YoY to stand at PkR11.2bn. Further respite to the bottom line came from realization of deffered taxation.In 4QFY14, company posted NPAT of PkR6.6bn (EPS: PkR0.24) as compared to PkR2.7bn (EPS: PkR0.1) in FY13, up by significant 2.4xYoY. While on QoQ basis earning was up by 4.2x.

Focus on improving Fleet efficiency and T&D losses:
The company awaits approval from Ministry of Water and Power for its dividend for minority shareholders as it is contingent on the wavier from majority share holders. While other majority shareholders (including KES, IFC and ADB) had already given their consent. On the coal conversion front the management is still waiting for NEPRA decision to fix the coal tariff. Additional generation capacity of 47.5MW would be added in a year by converting open cycle plants to combined cycle where 27.5MW would come online in Sep’14 while remaining would start commercial operations from Aug’15 resulting in increase fleet efficiency to 41%. On capex front, KEL is also planning to invest US$300‐400mn to improve its transmission and distribution network. KEL is currently trading at expensive PER and P/bv of 16.4x and 4.4x against KSE‐100 PER and P/bv of 8.29x and 1.82x respectively.


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