Even a cursory look at the performance of Pakistan’s largest IPP, Kot Addu Power Company (KAPCO) for July-December 2015 period gives a disappointing feeling. Profit of the company for the period under review declined by 10 percent as compared to the corresponding period a year ago. The erosion in profitability can be attributed to the decline in load factor to57 percent from 61 percent for the corresponding period of 2014. This performance looks disappointing because the company should have benefited in declining oil prices, a pass on factor.
According to a report by AKD Securities, the reduction in profit was in line with the forecast of analysts. KAPCO reported 1HFY16 profit after tax of Rs4.33 billion (EPS: Rs4.92) registering a decline of 10%YoY. The brokerage house attributed this decline to: 1) a 24.3%YoY fall in average low sulphur furnace oil (LSFO) prices for 1HFY16 coupled with lower load factor (57% in 1HFY16 vs. 61% for 1HFY15) pushed turnover and cost of sales lower by 41%YoY and 45%YoY, 2) higher overhaul and O&M expense raised Admin Expenses by 37%YoY and 3) halving of finance cost (down 58%YoY) signifying lower reliance on short term borrowing for additional liquidity.