K-Electric Limited Gradual reduction in T&D losses and improving efficiency is likely to bode well for the companys bottom line During the 1HFY14, the company reported EPS of PKR0.17 (up by 49% YoY), compared with EPS of 0.11 in SPLY. Growth in earnings primarily stemmed from better operational efficiencies, such as reduction in T&D losses, higher recovery rates, and improving thermal efficiencies of plants coupled with significant decline in financial charges. Annualizing the 1HFY14 earnings, the stock is trading at a P/E of 18.6x, significantly higher than the market of P/E 8.2x while its higher net debt to equity of 143% as of Dec-13 is indicating high financial risk. In 2QFY14, QoQ enhancement in earnings is due to improvement in thermal efficiencies and limited seasonal T&D losses. That said, further improvement in earnings is anticipated from several key initiatives undertaken by the company to further cut down its T&D losses, improve recovery ratio and enhance the thermal efficiency of its generating fleet. Since it is a slow and pains-taking process, these measures will benefit the company in the long run. The company is converting its 2 units (410MW) of BQPS-1 on coal, by leasing the said units to a newly formed company K-energy, which will undertake the conversion and provide cheap electricity to K-Electric after successful completion of the project. The PPA with K-Energy is under discussion while all of the project cost, which is ~400500mn USD, will be incurred by K-Energy. Moreover, the company also expressed its intention to convert the entire fleet on to coal, once the above mentioned conversion is completed, to reap the benefits. By bringing the power generation costs down, it will, to some extent, lower working capital requirement of the company, and minimize T&D losses. Research Taurus Securities Limited
Posted on: Thu, 06 Mar 2014 07:45:50 +0000
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