Saif Power working it through

Saif Power Limited (PSX: SPWL) – a subsidiary of the Saif Group – announced its financial performance for 2020 recently, and just as other IPPs, the key highlight was the decline in utilization levels due to lower dispatches of electricity during the year by the independent power producer.

SPWL’s net revenues dipped by 40 percent year-on-year where the utilization levels are expected to be much lower in CY20 versus 40 percent in CY19. While the actual utilization levels for CY20 were not known at the time of writing, they were 31.6 percent in 9MCY20 and are expected to hover at 25 percent for 2020. Overall, the electricity dispatches by Saif Power are expected to have dropped by 35 percent year-on-year in CY20 with a significant decline in the last quarter of 2020 (on a quarterly basis). This was due to lower demand for electricity during the winter months that leads to lower dispatches from the power companies. Also, as highlighted by a research note by Optimus Capital Management, lower utilization of gas is likely due to shortage of the natural gas in the country, particularly in winters. Administrative expenses remained unchanged while the finance cost contracted due to fall in the company’s short-term borrowings in a low interest rate environment. However, company’s earnings skidded by 35 percent year-on-year.

Saif Power is among the IPPs that shall receive payments from the government after the clearance from NAB authorities. Thus, the anticipated payment from the government along with better liquidity position in terms of adequate working capital lines despite the circular debt-related receivables touching Rs9 billion by September 2020 – and hence better prospects for dividends – puts the company among stocks with optimistic prospects. The company announced a final cash dividend of Rs2.5 per share for the year end in addition to Rs1.25 interim dividend already paid which was above the market’s expectation.

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