Mf project final.ppt
- 1. Managerial Finance Assumptions based on Financial Statement analysis of KESC
- 2. Group Members • Maria Abdullah • Faiza Asghar • Nayyera Anbreen • Asmara Rani • Iffat Saleem • Zakia Sultana
- 3. Presented to • Sir Asif Naqvi
- 4. INDUSTRY OVERVIEW In Pakistan Electricity is generated, distributed and supplied by two public sector utilities: • Water And Power Development Authority (WAPDA) • Karachi Electric Supply Corporation (KESC) • And others16 independent power producers
- 5. INDUSTRY OVERVIEW Continued • The country has a total installed generating capacity of about 19522 MW. • At the beginning Pakistan has relied on hydro electricity along with natural resources like gas which incurred more cost. • Pakistan has large reserves of gas and coal and if proper infrastructure is developed, country’s per unit rate could be amongst the lowest in the world.
- 6. Generation Capacity • Total Power Generation Capacity of Pakistan (including all sources) is 19,855 MW and the electricity demand (as of April 2010) is 14,500 MW • Pakistan’s total installed power generating capacity increased from 5229 MW to 19,522 MW, contributed 64% of the total, while hydroelectric power plants accounted for 33%, and Pakistan’s two nuclear power plants produced 3% of the total production.
- 7. Energy Sector in Pakistan
- 8. Generation Capacity Continued • The share of thermally generated electricity increased from 54% to 71% • Electricity – production: 88.42 TWh (terawatt- hour per year) 2005 • Electricity – production by source (2003) • Fossil fuel: 63.7% of total • Hydro: 33.9% of total • Nuclear: 2.4% of total
- 9. Generation Capacity Continued • Water & Power Development Authority (WAPDA): 11327 MW • Karachi Electric Supply Corporation (KESC): 1756 MW
- 10. Consumption • Between 1990/91 and 2003/04, total consumption increased by more than 84%, from 31 TWh to 75 TWh • An average annual increase of 7% has been estimated. • The short-term national energy demand has expanded significantly since 2001 due to massive rise in sales of durable goods like refrigerators, washing machines, split air conditioners.
- 11. Consumption Continued • Electricity – consumption: 74.62 TWh (2004) • Electricity – exports: 0% • Electricity – imports: 0% • Electricity Consumption per Capita = 430.183 kWh/capita (2006)
- 12. Percentage in GDP • Pakistan's industrial sector accounts for about 24% of GDP • The Federal Bureau of Statistics provisionally valued this sector at Rs.215, 662 million in 2005 thus registering over 62% growth since 2000 • In budget of 2010-2011 the Govt spent Rs.28423.8 million for Water and Power Division
- 13. Major Competitors Water & Power Development Authority Pakistan Atomic Energy Commission Independent Power Producers • Genertech • Hub Power Co. • Japan Power • K.E.S.C. • Kohinoor Power • Kot Addu Power • Nishat Chun Pow • Nishat Power Ltd. • Pakgen Power Ltd. • Sitara Energy • Southern Electric • Tri-Star PowerXD
- 14. Industry phase • Electricity generation in Pakistan has shrunk by 50% in recent years due to an overreliance on hydroelectric power • In 2008, availability of power in Pakistan falls short of the population's needs by 15% • During 2010 Pakistan floods and 2005 Kashmir earthquake power stations, power distribution and transmission and other energy infrastructures were damaged The current shortfall is 7500 Megawatts
- 15. Karachi Electrical Supply Company • KESC is one of the oldest companies in Karachi and was established even before the creation of Pakistan in 1947 Was incorporated in 1913. • KESC is engaged in the generation, transmission and distribution of electricity in Pakistan • It supplies electricity to approximately 2. 1 million industrial, commercial, agricultural, and residential consumers located primarily in Karachi, as well as in the towns nearby.
- 16. • The company has an installed capacity of 1,890 megawatts. • The revenue of KESC for year 2007-2008 is PKR 49.606 billion • The total assets amounted to PKR 93.076 Billion • In November 2005, the Privatization Commission in Pakistan sold KESC to Hassan Associates, a group of local and Saudi investors. • The Pakistani government has supported the company with a $200 million annual subsidy • The Pakistani government will maintain a 26 percent share of the company
- 17. FINANCIAL PERFORMANCE (FY05- FY10): • The Company has been able to grow revenues from 40 billion in FY05 to 103. 9 billion in FY10. • Gross losses increased from 15. 83% in FY07 to 21. 86% FY08 • Gross losses improved from 21. 9% in FY08 to 5. 7% in FY10.
- 18. • Return on assets decrease from 1% in FY05 to negative return of 17% in FY08 • ROA fell from -17% in FY08 to -7% in FY10 • Return on equity fell from -52. 57% in FY07 to -232. 27% in FY08
- 19. • The liquidity position of the company has decreased in the past few years and reflected a continuous decline since 2005 • The current ratio showed a decreasing trend and this was mainly due to increase in current liabilities • liquidity has also showed slight improvement after FY08
- 20. • Debt to equity ratio increased to a figure of 1216. 13% in FY08 The ratio turned negative in FY09 and 2010, indicating negative equity. • Days Sales outstanding (DSO) has increased from 52 days in FY07 to 67 days in FY08, further continued to increase and reached 101 days. • Inventory turnover has reduced indicating that the company is using its inventory efficiently (inventory mainly comprises of spare part used in distribution and transmission)
- 21. • Share prices have also decreased drastically from Rs 13. 7 in FY05 to Rs 3. 0 in FY09. In FY10 • The company s long-term financing raised drastically showing 60% increase in FY08 and a further 117% in FY09 whereas total assets rose by 20% and 41. 75% in FY08 and 2009 respectively • KESC is a highly leveraged firm the recent increase in discount rate will adversely affect the company s ability to pay interest.
- 22. ASSUMPTIONS: Revenue will increase • Customers increase as annual population growth rate is 3%. • Increase in customer demand especially in winter when gas supply is cut domestic users increase electric appliances for cooking and heating homes and workplaces. • Due to increase in inflation rate the prices increase and revenue will grow • The market growth rate increase • Increase in unit bills and fuel bills • Increase in tariffs • Increase in sales mix • Increase in power generator’s fuel prices
- 23. Profitability will remain negative • The main reasons for these losses are firstly the Transmission and Distribution (T&D) losses due to old and obsolete distribution network • Theft of electricity • Difficulty in getting bills from different regions of the city • Government institutions non- payment which is the biggest defaulter of WAPDA
- 24. Total debt to total asset will rise • Company needs to finance its new projects • Because the company’s long-term financing and poor financial position • The company will have to pay high interest rates due to more leveraged firm.
- 25. Sales outstanding (DSO) will increase • Days • The company has an inefficient or overburdened credit and collections department • Inadequate analysis of applicants for open account credit terms • The larger volume of disputes specially in Karachi over load shedding and power failure issues • customers are dissatisfied with the company's product or service
- 26. EPS and P/E ratio will indicates a decline • Because of increasing losses • Share prices will decrease drastically due to the bad performance of the company. • The company has poor debt management • The cost of the company will increase due to the high cost raw material will effect profitability and ultimately result in low EPS
- 27. Current ratio will increase • Repayment of some short term loans reduce the current assets and current liabilities and current ratio increase • Company has the ability to pay its current obligations • Increase in sales inventory, will increase the current ratio • The company has money in cash or investments
- 28. Return on asset decrease • Management is not efficient, poor management • Assets are used inefficiently
- 29. Threats to KESC • Government agreements to private companies for rental power supply • Shortage of gas supply by SSGC & SNGC • Machinery is old and refurbishment needs a lot of investment • Sabotage is possible • Biggest distributor is WAPDA which is government owned entity.
- 30. Any Question
- 31. Thank you