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AKD Securities Limited – Off the Analyst’s Desk (November 23, 2022)

Karachi, November 23, 2022 (PPI-OT): KEL: Analyst Briefing Takeaways

K-Electric Limited (KEL) held its analyst briefing yesterday to apprise investors on the FY22 and 1QFY23 results along with its future outlook. To recall, KEL posted a PAT of PkR8.5bn (EPS: PkR0.31), while posting a LAT of PkR16.4bn (LPS: PkR0.6) in 1QFY23.

The management explained the reasons for incurring a loss in the first quarter of the fiscal year, citing impairment losses of PkR7.9bn against doubtful trade debts along with a reduction in units sent out which caused a loss of PkR2.4bn. Moreover, an exchange loss of PkR2.6bn was incurred due to the rapidly depreciating local currency, while finance costs of PkR6.4bn further impacted earnings.

The company recorded an improvement in its recovery rate in FY22, clocking in at 96.7%. For 1QFY23, the company could only recover 88.9% of bills sent out to consumers. The management has explained that due to macro-economic conditions, higher tariffs along with high inflation has left a significant portion of consumers unable to pay their dues, hence leading to impairment losses.

For the first time since its privatization, T and D losses have fallen below the approved benchmark in the tariff allotted by NEPRA, dropping down to 15.3% in FY22 vs. 17.5% in FY21. This bears good news for the company along with the entire Power sector, as the major causes of circular debt are low recovery ratios along with higher than tariffed T and D losses.

The generational efficiency of KEL improved by 0.6%YoY in FY22 and 1QFY23, clocking in at 38.6%/38.7%. Forced outages in FY22 dropped down to 749 in FY22 vs 1,768 in FY21, with the reliability of the system improving to 99.5% from 98.8%. Transmission capacity increased by 5% in FY22, with trips in transmission decreasing by ~20%.

Going forward, the 900MW RLNG plant is expected to increase generational efficiency, along with 450-500MW of renewable projects which are going to come online by FY25. Moreover, the transmission capacity is planned to expand to 7,200MVA by FY23 through multiple projects.

KEL is planning to file with separate tariffs for Generation, Transmission and Distribution, hoping that cost-recovery will be aided due to the separation of tariffs for all 3 operations. Moreover, the company is working towards a new Multi-Year Tariff starting from FY24, hoping it will enable key investments which were unable to be made under the current MYT.