The country’s power sector outperformed the Karachi stocks market (KSE-100) by 11 percent in FY13, generating a return of 60 percent compared to 49 percent by the market.
According to analysts at InvestCap Research, after receipt of the circular debt amount by various power sector companies on June 28, a significant growth in final dividends of these companies was witnessed. Hubco, Kapco and Kohinoor Energy Ltd (KOHE) announced a final dividend of Rs 4.5, Rs 4.5 and Rs 3.0, respectively, in FY13 translating into a final payout ratio of 112 percent, 108 percent, and 104 percent. “Such payout was a marked improvement when compared to a final dividend of Rs3, Rs3.15 and Rs1.5 by the relevant companies in FY12 taking the final payout ratio to 70 percent, 82 percent, and 54 percent respectively,” said InvestCap analyst M Irfan Saeed.
In order to analyse the same more objectively, the analyst calculated the final payout ratio based on final dividend and 2H earnings and keeping all other factors constant for payout except for circular debt resolution. In addition to a higher final dividend, surprise interim payout of Rs 6.75 by KOHE and Rs2 by NCPL also delighted investors, placing the above mentioned stocks amongst the top dividend yielding stocks at KSE, said Saeed.
Final dividend of NPL and NCPL is yet to be announced. “We are quite hopeful that the same will be a positive surprise for investors,” he said. Such an exemplary dividend payout can be attributed to the circular debt settlement of FY13, the analyst added. “Going forward, we expect improved liquidity to prevail in the sector on account of recent power tariff hike however; we do not foresee any surprise interim payouts during FY14,” said Saeed.
Currently, the government is bearing Rs 5 per unit power tariff differential subsidy mainly due to high electricity generation cost.
The current generation mix is 44% dependent on FO and HSD with an estimated cost of Rs17/unit. The government is currently pursuing a paradigm shift in generation mix from oil based generation to low cost coal based generation.
In its recently released power policy, the govt emphasized a shift in generation mix to coal in addition to increased generation by adding new capacity to the national grid. Hubco, Lalpir power, Pakgen and NPL are key candidates for coal based conversion. Currently all these plants are running on furnace oil. “Though, physical working on coal conversion remains pending requiring heavy upfront outlay, changes in existing contracts and various complex new agreements, we expect the government to pursue the same on a war-footing basis. However, we do not expect any conversion before FY16,” said he. Energy reforms already taken by the present government and continuous efforts to resolve energy crises of Pakistan are expected to bode well for power sector.
“We expect the power sector to remain one of the best dividend yielding sectors during FY14,” the analyst said.
