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KEL - FY23 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Nov 17, 2023)

KEL held its corporate briefing today to brief investors about FY23 financial results and shed light on the future outlook:

• Company’s generation/transmission/distribution capacity stands at 2,817/6,965/8,808 MW, serving customer base of 3.5mn, with peak demand reaching 3,650MW during FY23. KEL purchases 1,600MW from external sources (dedicated IPPs and national base)
• Company dispatched 18.3k gwh (down 7.3%) during the year. T&D losses stood flat at 15.3% (0.9% losses from transmission) while recovery ratio fell to 92.8% (vs. 96.7% last year), largely due to elevated consumer tariffs and FCA adjustments. Notably, plant’s efficiency stood higher at 42.2% during FY23 (vs. 38.6% last year) due to addition of 900 MW BQPS-III RLNG power plant in KE’s fleet.
• Grid and transmission trips have fallen by 61% since FY12. Company’s transmission capacity stands at 6.9k MVAs, sufficient to meet planned capacity enhancement initiatives going forward. Company expects Karachi’s demand to rise to 5,000MW by 2030.
• Lower power sent out and falling recovery rates resulted in lower contribution margins, which were down 12.3%YoY. Additionally, lower recovery rates also resulted in additional ECL charges of PkR6.3bn during the year.
• Sharp depreciation of the local currency also resulted in FX losses of PkR4.4bn on foreign liabilities (unhedged FX liabilities of PkR120bn). Further, finance costs surged to PkR19.4bn due to higher borrowing rates, however mitigated by increase in other income (bank deposits, TDRs and LPS).
• Present MYT regime (2017-2023) remains problematic for the company, as growth in power demand is pre-determined by NEPRA, hence costs/adjustments over and above the prescribed figures remain unadjusted and are absorbed by KE. Company expects renewal of fresh tariff soon, with the aim of securing a sustainable and cost-reflective mechanism.
• Company is pursuing PPA to enhance power drawn from national grid to 2,600MW, alongside a revamped mechanism for tariff differential subsidy.
• Non-provision of local gas supply remains an issue (9MMCFD supplied to KE in FY23) from SSGC, resulting in KE to resort to expensive sources of generation (RLNG, RFO and HSD).
• Company is transitioning towards separate tariffs for its generation, transmission and distribution units, similar to the tariff regime in case of IPPs. This is expected to result in rationalized costs (compared to fixed assumptions) going forward, as per management. Company filed for the claim last year, and expects determination by NEPRA to be announced in coming months.
• Company plans to take renewable generation share to 30% of total generation base as part of new plan, major additions being from solar and wind power.
• With regards to transmission and distribution tariff, company has to get ‘Investment Plan’ filed and approved from NEPRA. The plan, amounting to PkR484bn, will result in increased customer base, higher renewable generation, reduction in outages and losses. The financing is to be from domestic borrowings.
• Company expects realization of tax losses in coming years (DTA in FY23 accounts: PkR23.56bn), resulting in higher income in coming periods.
• Customer mix of KE is as follows: 59%/34%/7% for residential/industrial/public sector, respectively.
• Company procures 130MMCFD of RLNG from PLL for its gas-based plants.
• With regards to deal with Shanghai Electric, management reiterated that deal is in process. Currently, approvals from authorities (regarding circular debt stock) and national security certificate is awaited.