Kohinoor Energy Limited (KEL) was incorporated in 1994. It is listed on all the three stock exchanges of the country. KEL is one of the many Independent Power Producers (IPP) operating in Pakistan. The principal activity of the company is to operate, generate and maintain a furnace oil power station with the net capacity of 124 megawatt, whereas the gross capacity is around 131.44 MW.
Its main buyer of electricity is Wapda; KEL’s plant is situated at the Link Manga Raiwind Road Lahore.
RECENT RESULTS (3Q11)
Kohinoor Energy Limited’s furnace oil fired power plant generated 232.128MWH of electricity at 85.48% capacity factor in 3Q11 as compared to 220,264 MWH (82.29% capacity) in 3Q10. The sales turnover of Kohinoor Energy Limited in 3Q11 is Rs 2.93 billion as opposed to Rs.2.47 billion in 3Q10. The company’s net Profit after tax in the third quarter of 2011 is Rs 225 million compared to Rs. 146 million in the third quarter of 2010. The increase in profits was due to saving in fuel consumption and use of the steam turbine, which was out for 5 years maintenance in the previous quarter. The aggregate turnover for Kohinoor Energy Limited in this quarter is Rs. 7.70 billion compared to Rs. 7.02 billion in the third quarter of 2010.
The current ratio for Kohinoor Energy Limited in 3Q11 is 2.8 as compared to 8.2 in the third quarter of 2010. The decrease in current ratio is because the current assets increased by 46.5% but the current liabilities increased by a much greater percentage, that is 324%. The short-term borrowing increased from Rs 165 million in 3Q10 to Rs 1407 million in 3Q11. The creditors’ accrued and other liabilities increased by 18.4%. The quick ratio dropped from 7.5 in third quarter of 2010 to 2.69 in the third quarter of 2011. This decrease is again due to the 324% increase in current liabilities.
The inventory turnover in the third quarter of 2011 is 11, an increase from 8.25 in the third quarter of 2010. This increase is because the cost of sales in 3Q11 increased by 15.3% and the inventory in 3Q11 fell by 13.7% as compared to 3Q10. The cash and bank balances have decreased by 74.5% in 3Q11 as compared to 3Q10. And there are no short-term investments in 3Q11. The company’s non-current assets too have fallen by 2.9%. The total asset turnover for 3Q11 is the same as 3Q10 at 0.34. The sales to equity ratio has increased from 0.36 in 3Q10 to 0.42 in 3Q11. This is due to the 18.5%increase in sales in 3Q11 from the corresponding third quarter of last year.
The TIE ratio has fallen from a handsome 61.1 in 3Q10 to 9.3 in 3Q11. This is because the EBIT has increased by 66.3% but the interest expense has increased by a much greater 994%. The TIE has fallen because of this great increase in interest expense. The total debt to asset ratio has increased from 8.1% in 3Q10 to 17.4% in 3Q11. The reason for this increase is the increase in total debt.
Overall the profitability of KEL has slightly improved in 3Q11 as compared to 3Q10. The return on assets has increased from 2% in 3Q10 to 2.59% in 3Q11. This is because of the 54.3% increase in net income and a much less, 18.3% increase in total assets. The return on equity has increased from 2.1% in 3Q10 to 3.2% in 3Q11 again due to the increase in net income. The gross profit margin has increased to 9.96% in 3Q11 as compared to 7.47% in 3Q10. This is because the gross profit increased by 58% and sales by only 18.5%. The net profit margin too increased to 7.67%in 3Q11 as compared to 5.89%in 3Q10. This is due to the 54.3% increase in net income mentioned before.
The earning per share has increased from Rs 0.86 in 3Q10 to Rs 1.33 in 3Q11. The reason for this is the increase in net profit mentioned earlier. The book value per share has increased to Rs. 41.6 in 3Q11 as compared to Rs.40.99 in 3Q10. The market price per share was Rs 17.52 at 31 March 2011 as compared to Rs. 31.6 at 31 March 2010. The P/E ratio dropped from 36.7 in 3Q10 to 13.2 in 3Q11.
In FY10, overall revenue of 9.47 billion was recorded as compared to Rs 8.33 billion in FY09. Despite a high dispatch level of 82.81% the profitability has fallen in FY10 as compared to FY09.The net profit after tax in FY10 is Rs 687.3 million a 24% decrease from the previous year. The reason for this decrease in net profit after tax is that even though the sales have increased, the cost of goods sold has increased by a greater margin leading to a lower gross profit as compared to FY09.
The cost of goods sold has increased due to increase in the price of furnace oil this year, the price of imported furnace oil reaching around Rs 50,861 per ton as of November 2010. There has been a slight increase in administrative expenses also. It can be seen that there has been a significant decrease in finance costs (Rs 47.8 million in 2009 to Rs 5.5 million in 2010).
Another interesting thing noted is that the company’s energy fee has increased from Rs 6950.97 million in FY09 to Rs 8468.6 million in FY10. However the capacity fee has fallen from Rs 1383.37 million to Rs 998.8 million in FY10.
In FY09, the company earned overall revenue of Rs 8.33 billion as against Rs 7.38 billion recorded in the same period of FY08. The net profits after tax also registered a growth of 38% from the previous year to stand at Rs 905.05 million in 2009. The reasons for higher profitability in FY09 included high dispatch levels of 80.33%, saving in fuel consumption, reduction in administrative and general expenses and gain on exchange rate parity. The profit margin on sales stood at 11% as compared to 8.86% in FY08. Similarly, the return on assets for the period is 13%. In short, the profitability ratios had displayed a stable trend in FY09.
The DSO, total asset turnover and sales-equity ratios are all greater in FY10 as compared to FY09. The total asset turnover has increased from 1.2 in FY09 to 1.3 in FY10. The sales-equity has increased from 1.24 in FY09 to 1.34 in FY10. This indicates that asset management has been slightly better in FY10. Total assets have increased by 8.31% in FY10 as compared to FY09. Cash and check balances have reduced by 53.3%. The advances, deposits and receivables have increased by around 91%. This means that the company has moved from cash sales to more credit sales in FY10. The company has also moved its cash to short term investments. The company has Rs 76.76 million short-term investments in FY10 as compared to none in FY09. The lack of liquidity of the company is most likely due to the circular debt issue prevailing in the country. The circular debt in the power sector of Pakistan had reached Rs 144 billion by October 2010. This would have impacted the liquidity position of the company.
The inventory turnover has increased from 23.3 days in FY09 to 51.3 days in FY10. The liquidity position has declined in FY10 as compared to FY09. The current ratio has fallen from 12.22 in FY09 to 7.65 in FY10. The quick ratio stands at 1.76, which is lower than the previous year. This decrease in current ratio is due to a huge increase in current liability in FY10 of about 109% as compared to the previous year. The current assets in FY10 have only increased by 30.8% as compared to the previous year. The decline in the company’s liquidity position can be attributed to circular debt as mentioned earlier.
In FY09, the liquidity position improved significantly, with a current ratio of 12.22. This improvement in the liquidity position was mainly on the back of the huge dip of 73% in the current liabilities, which stood at Rs 208.9 million. This was mainly because of the sudden dip in current maturity of long-term loans and other trade related liabilities. This enabled the profitability ratio to rise despite a dip of 7% in the current assets in the same period.
The total debt to asset ratio stands at 5.93% in FY10 as compared to 3.15% in FY09. This is because the debt has increased significantly in FY10. There is Rs 200 million finances under mark-up arrangement as compared to none in FY09. Creditors, accrued and other liabilities have increased by 11% and there has been an increase in accrued finance cost, deferred liability and provision for taxation. Kohinoor Energy Limited has no significant long-term debt. The TIE ratio has increased significantly in FY10 due to a significant decrease in the finance cost (Rs 47.7 million in FY09 to Rs 5.5 million in FY10). The TIE ratio has therefore increased to 128.56. The debt to equity stands at 0.063 in FY10 as compared to 0.032 in FY09.
Total debt to total asset ratio in FY09 stood at 3.15%, down from 10.78% at the end of FY08. Long term debt to assets registered a minor increment and stood at 0.14 from 0.12% in FY08 to 0.04% because staff retirement benefits and related obligations, which rose in comparison to FY08. The overall Finance cost declined by 43% in the FY09 to stand at Rs 47.7 million. This was due to a decline in short-term borrowings from banks, which were offering higher interest rates to borrowers due to the current economic conditions (persistent inflationary pressures). Equity position was higher because of the increase in unappropriated profits during that period.
In FY10 the price to earnings ratio increased to 6.53 from 5.43 in FY09. The EPS has fallen from Rs 5.34 per share to Rs 4.06 per share. This is due to the low profit after tax due to reasons discussed earlier. The book value per share has increased from 39.6 in FY09 to 41.6 in FY10. The dividend per share has fallen from Rs 4.5 per share in FY09 to Rs 2 per share in FY10.
In FY09, the earnings per share showed a recovery and stood at Rs 5.34 per share as compared to Rs 3.86 per share. This was due to higher after tax income due to reasons discussed earlier. The book value per share also showed consistency over the period FY09, indicating that there were prudent steps taken by the company management to ensure the best interests of the shareholders.
The profitability has fallen in FY10 as compared to FY09. The ROA in FY09 was 13%, which fell to 9% in FY10. The return on equity has fallen from 53.4 % to 40.5%. Gross profit on sales has fallen from 13.13% in FY09 to 8.85% in FY10. Profit margin on sales in FY10 was 7.3% as compared to 10.9% in FY09. The reasons for lower profitability are that a steam turbine was not available to Kohinoor due to 5 years maintenance. And also because an indexation amount of Rs 228.585 million was not recognized and is in dispute with WAPDA.
The future outlook of the power generation sector looks slightly better as the global meltdown will hit its bottom in 2009. The meltdown will ensure that there is downward pressure on international oil prices causing the prices of other oil-grade products such as furnace oil to be on a downward slide. This along with depressed local industrial demand the prices of furnace oil are expected to remain low at least during the next two quarter in Pakistan.
In the present circumstances where the country is facing severe shortage of power supply, the company is constantly performing at high dispatch levels. The power plant responding to load demand of WAPDA, in overall dispatched 872,630 MWH of electricity as compared to 881,894 MWH dispatched during the previous financial year. The overall capacity factor of the power complex remained at 80.33% as against 81.19% of the last financial year.
During the financial year under review seven engines reaching at 52,000 running hours have been overhauled under major maintenance program. All of the engines are in good condition and fully contributing to the power complex.
The company has recently successfully qualified the Annual Dependable Capacity Test conducted in October 2008. The complex had demonstrated the net capacity of 129.44 MW as against the contractual net capacity of 124 MW.
Recently, the company has entered into a new agreement with Wartsila Pakistan for major maintenance of the power plant. Besides the company is also striving to constantly cut costs and raise profits in order to fulfill its obligations
The Government of Pakistan (GOP) is also trying to resolve the circular debt crisis that had plagued the power sector of the economy last year and still continues to be a major threat to the sector. The State Bank issued Rs 75 billion worth of treasury bills to raise revenues from the public to release funds to WAPDA and other government entities so that they could clear their dues IPPs such as KEL. The president of the country also in Jan 2009 issued a statement directing the Ministry of Finance to find a sustainable solution to the circular debt issue.
We expect the circular debt situation to ease out for another reason; that is the fact that because Pakistan has signed a stabilization program with IMF (international monetary fund) again so it could be safely concluded that subsidies will decline drastically across the board on all major consumer items including petrol. This would result in the transfer of prices from the government to consumer and industrial users hence IPPs, oil marketing companies (OMCs), and other national amenities providers (like WAPDA) won’t be dependent on the government for payments which are almost always delayed.
It is extremely important for Pakistan to come up with a long run plan to overcome the circular debt issue because the power sector has important implications on the health of the country’s manufacturing sector. One of the ways to achieve success in overcoming this problem is through fiscal discipline that is if the GOP can control its expenditures and raise sufficient taxes by broadening the tax net than timely payments could be made to IPPs. Secondly the GOP should find credible solution to the ailing government units like PIA. This is important because the losses incurred by these government entities directly or indirectly affects the power sector companies.
For FY10 the condition of power generation sector has somewhat been uncertain. There has been a surge in furnace oil prices and a reduction too. The country has been facing a severe shortage of power supply. Kohinoor Energy Limited has been working at high dispatch level of 82.81%. In FY10 there was a decrease in the base tariff applicable for 2010. Also an indexation amount of Rs 228.585 million is under dispute with WAPDA and has not been recognized and paid by WAPDA. Kohinoor Energy Limited intends to submit this dispute to its legal advisors and is confident that the issue will be decided in Kohinoor’s favor. In FY10 Steam Turbine was not available to Kohinoor Energy Limited as it is under 5 years maintenance. All of this has been a major contributor to Kohinoor’s decrease in profitability.
KOHINOOR ENERGY FINANCIALS
2002 2003 2004 2005 2006 2007 2008 2009
Sales 2,129,375 2,397,091 2,335,476 2,918,583 4,984,208 5,333,106 7,387,857 8,334,341
Cost of sales 967,771 1,358,062 1,264,170 1,879,009 3,749,585 4,180,586 -6,432,159 7,239,966
Gross profit 1,161,604 1,039,029 1,071,306 1,039,574 1,234,623 1,152,520 955,698 1,094,375
Administration & general expenses 68,166 110,952 108,484 107,120 128,497 230,159 232,198 182,523
Operating profit/other income 1,093,438 928,077 962,822 42,331 45,195 21,405 20,500 54,185
Operating profit & other income 1,178,147 967,313 1,009,171 974,785 1,151,321 943,766 744,000 966,037
Finance costs 330,766 253,964 181,150 161,476 128,262 99,984 -84,307 47,796
Profit before taxation 847,381 713,349 828,021 813,309 1,023,059 843,782 659,693 918,241
Taxation / provision for taxation 18,442 12,650 6,292 7,900 9,800 7,100 -5,000 13,185
Profit after taxation 828,939 700,699 821,729 805,409 1,013,259 836,682 654,693 905,056
2002 2003 2004 2005 2006 2007 2008 2008
property, plant, & equipment 5,489,886 5,164,693 4,971,587 4,799,639 4,666,324 4,722,146 4,537,937 4,363,430
Intangible assets – – – 5,661 4,331 6,041 4,545 3,658
capital work-in-progress 1,305 9,105 20,898 18,328 11,330 67,959 55,210 –
Long term loans & deposits 4,780 5,084 4,476 4,350 4,898 4,831 10,360 9,209
Total fixed assets 5,495,971 5,178,882 4,996,961 4,827,978 4,686,883 4,800,977 4,608,052 4,376,297
Stores, spares, & loose tools 187,199 177,551 203,822 285,179 319,578 307,228 382,892 366,072
Stock in trade 87,752 120,045 121,076 130,725 144,637 209,416 85,560 311,234
inventory 274,951 297,596 324,898 415,904 464,215 516,644 468,452 –
Current assets-Inventory* 2,108,596 1,665,523 1,532,684 1,527,618 1,581,662 1,875,343 – –
Trade debt 725,284 211,589 280,563 394,102 561,530 1,155,394 1,939,815 963,309
Advances, deposits & other receivables 174,351 220,769 185,357 260,150 391,218 321,997 197,757 240,122
Cash & check balances 1,208,961 1,233,165 1,066,764 873,366 628,914 397,952 139,298 664,074
Total current assets 2,383,547 1,963,119 1,857,582 1,943,522 2,045,877 2,391,987 2,745,322 2,544,811
Total Assets 7,879,518 7,142,001 6,854,543 6,771,500 6,732,760 7,192,964 7,353,374 6,921,108
EQUITY & LIABILITIES
CAPITAL & RESERVES
Authorized ordinary shares/rs. 10 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000
Issued, paid-up/ordinary shares: Rs 10 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586
Unappropriated profits 2,152,026 2,344,349 2,742,431 3,124,194 3,798,535 4,635,217 4,866,263 5,008,754
Reserve for bonus shares – – – – – – – –
Total equity 3,846,612 4,038,935 4,437,017 4,818,780 5,493,121 6,329,803 6,560,849 6,703,340
Long term loans( secured/unsecured) 2,758,367 2,023,242 1,411,778 805,885 286,965 96,051 – –
Staff retirement benefit/Deferred liability 7,770 14,639 21,678 3,519 2,986 4,030 8,795 9,672
Total non-current liabilities 2,766,137 2,037,881 1,433,456 809,404 289,951 100,081 8,795 9,672
Finances under mark up arrangements – secured 0 0 0 0 0 360,000 470,608 0
Current portion of long term loans 790,133 621,867 626,485 642,912 525,246 192,102 108,097 0
Creditors, accrued & other liabilities 411,580 113,866 107,944 413,402 329,314 113,728 107,755 107,167
Provision for taxation 65,056 75,264 80,182 87,002 95,128 97,250 97,270 100,929
Proposed dividend – 254,188 169,459 – – – – –
Total current liability 1,266,769 1,065,185 984,070 1,143,316 949,688 763,080 783,730 208,096
Total liabilities 4,032,906 3,103,066 2,417,526 1,952,720 1,239,639 863,161 792,525 217,768