Pakistan IPPs – NAB gives go-ahead to process pending IPPs payments

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Dear Clients,

NAB has reportedly given the go-ahead to the Power Division for processing the pending overdue amount for IPPs falling under the 2002 Power Policy. To highlight, overdue payment to said IPPs was withheld on Jun 04’21 with Power Division citing the ongoing NAB investigation for its decision. The total overdue amount of these IPPs summed to PKR 145.7bn, of which PKR 58.4bn (40% of the overdue) is slated to be paid in the coming days.

Nishat IPPs to emerge as clear winners: We estimate both the Nishat IPPs (NPL & NCPL) to emerge as clear winners of the anticipated payment. Nishat Power (NPL) is estimated to receive PKR 6.1bn (PKR 17.2/sh), of which PKR 2.0bn (33.33%) will be in cash while the remainder will be in PIBs and Sukuks. Meanwhile, NCPL’s 40% overdue amount sums to PKR 6.6bn (PKR 18.0/sh) and will be paid under a similar structure. NPL is projected to generate the highest cash surplus net of its short term obligations. We estimate the company to generate a cash surplus of PKR 11.0bn (EPS: PKR 31.1), which amounts to 147% of the stock’s last price. NCPL’s surplus is estimated at PKR 4.8bn (EPS: PKR 13.1/sh) because of its elevated near term obligations.

NML and NCL to get a slice of the pie: Nishat Mills (NML) owns 181mn shares of NPL while Nishat Chunian (NCL) owns 187.5mn shares of NCPL. All future cash announcements by both NPL and NCPL directly benefit the aforementioned textile companies. The net cash surplus on NML’s books from NPL is estimated at PKR 16.0/sh while the net surplus on NCL’s books is estimated at PKR 10.2/sh.

HUBC’s Narowal also projected to receive PKR 7.6bn: Narowal Plant’s overdue amount is estimated at PKR 19.0bn, of which PKR 7.6bn (PKR 5.9/sh) was withheld in the first payment. The payment is expected to further improve HUBC’s cash-flow situation after the initial clearance of its base plant’s overdues. We project HUBC’s dividend paying capacity to improve further for FY22, during which we expect the company to announce cash dividends of PKR 12.0/sh.

HUBC remains our top pick in the IPPs space: HUBC stands as our preferred play in the IPPs space on account of its growth story and the overall improvement in the energy chain’s dynamics. Our TP for HUBC stands at PKR 130/sh, offering an upside of 61%.

KASB Research

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