By: JS Global Capital Limited
We reiterate our ‘Buy’ rating on K-Electric Limited (KEL) post yesterday’s betterthan-expected 1QFY16 earnings announcement. We flag 80% potential upside to our revised Target Price of Rs13.5 as we lift our earnings estimates by 4-7% over FY16E-18F.
While headline earnings overshot ours and street estimate by ~20%, we believe significant uptick in core profitability (not completely visible in headline EPS) is massively heartening.
In 1QFY16, KEL’s PBT is +117% YoY and +47% QoQ vis-à-vis +108% YoY and -46% QoQ growth in PAT.
Gross Profit is up 46% YoY and 25% QoQ, led by (1) pick-up in demand, (2) drop in T&D losses and (3) improvement in fleet efficiency fueled by the commissioning of KCCPP in March 2015.
As per our discussion with the management, significant breakthrough has been achieved with regards to finalization of coal-conversion tariff. NEPRA has reached a decision, and tariff is expected to be announced over the next two to three weeks.