By: lrfan Saeed
+92-21-35205520-22 (Ext 8635)
Invest Capital Markets Limited
Saif Power Ltd (SPL) is up for listing at KSE where the book building of the same would be held on 30th Sep’14 from 9am to 5pm. The price band for book building is Rs18/share to Rs30/share. The present offer is for 48.3mn ordinary shares (12.5% of the total paid up capital) whereby 75% (36.2mn shares) of the offer size being offered through book building to institutions and HNWI while the remaining 25% (12.1mn shares) will be offered to general public at strike price. In today’s Value Seeker we highlight the key areas of the offer along with our recommendation.
Lower capacity utilization amid gas curtailments
SPL is a 225MW combined cycle thermal power project with two gas turbines and one steam turbine. The plant is on SNGPL network and requires 35mmcfd gas to continue its operation at optimal capacity. SNGPL being a gas deficient company failed to supply gas as per agreement since its Commercial Operation Date (COD) particularly in winter season which in turn slide down the capacity utilization to 40% in 2012 and 49% in 2013. Although, ECC allowed SPL on 30th Jun’11 to carry its operation on HSD whenever the gas would not be available during the year but low capacity utilization showed the government’s inability to purchase costlier electricity generated through HSD. The average HSD tariff remained at Rs18.8/kwh since COD to 2013 as against average gas tariff of Rs3.4/kwh during the same period. Trade debt of ~Rs6bn as on 31March 2014 also indicate the liquidity stretch to the company caused by delayed payments from NTDCL.
Due to lower capacity utilization, SPL earnings were significantly lower than other power companies with same plant size (e.g. NPL & NCPL) since its COD. Going forward, the fortune of the company hinges on LNG import from Qatar which could result in better gas supply to the plant. The company has also announced an interim dividend of Rs2/share (out of Rs3.5/share declared on 31Dec’13) to the subscribers of current offering. SPL has no dividend history except 35% declared in 2013. The following table highlights the key financials of the company.
Outlook and Recommendation
Although SPL has a very efficient plant installed by General Electric and Siemens with fuel efficiency of 51.2% on Gas and 48.5% on HSD (one of the highest in Pakistan) but less availability of gas and HSD being costlier fuel are major concerns for the company. However, LNG import from Qatar may improve the gas supply to the company and thus turn around its profitability.
Given the current scenario to remain intact we recommend ‘neutral’ at price of Rs22/share.