Kot Addu Power Company Limited’s (PSX: KAPCO) privatisation has been lingering for quite a long time now. However, the process has picked up pace after it was reported that the government has met the structural benchmark set by the International Monetary Fund (IMF) during the eleventh review with respect to divestment of government shareholding in the IPP. Just recently, the Privatisation Commission (PC) approved Dubai Islamic Bank-led consortium as financial advisor for strategic sale of the government’s remaining 40.25 percent stake in KAPCO.

KAPCO’s privatisation hit a snag, and the share prices have remained lukewarm due to the IPPs liquidity damages and the upcoming maturity of its Power Purchase Agreement (PPA) in 2021. Now that the go-ahead has been received for offloading KAPCO’s government shareholding, chances of PPA extension beyond 2021 are quite high as the remaining life of the plant is somewhere around 20 plus years. On the other hand, the government will have to solve the issue of liquidity damages if it wants a good price of its strategic sale.

Also, what recently made investors wary was the government’s decision to scrap power projects based on imported fuel; KAPCO is setting up a 660 MW coal fired plant in Punjab. However, the IPP is moving ahead with the project with its financial close expected by the end of 2016.

Besides this, the year FY16 has been unexciting for KAPCO. The financial performance of the IPP remained subdued in the fiscal with earnings declining by seven percent year-on-year. However, the reduction in cost of sales was driven primarily by lower O&M costs especially in the fourth quarter and the declining cost of fuel. Also, almost 50 percent reduction in finance cost aided KAPCO’s earnings for FY16

Besides lower load factors, other income that largely constitutes penal income (as payments from WAPDA) dented the bottom line with 36 percent year-on-year decline.

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Kot Addu  Power Company Limited (KAPCO)


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Rs(mn)                        FY16      FY15     YoY


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Sales                       64,178   101,481    -37%


Cost of sales               50,770    86,335    -41%


Gross profit                13,408    15,146    -11%


Administrative expenses        529       418     27%


Other income                 4,041     6,321    -36%


Profit from operations      16,920    21,036    -20%


Finance cost                 3,237     6,248    -48%


Profit after tax             9,071     9,799     -7%


EPS (rs/share)               10.31     11.13     -7%


Gross margin                 20.9%     14.9%


Operating margin             26.4%     20.7%


Net margin                   14.1%      9.7%


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