AKD Quotidian about — Lalpir Power Ltd.: A new entrant in the Power Sector

Karachi, June 10, 2013 (PPI-OT): The sponsors of Lalpir Power have officially announced an Offer for Sale (OFS) of 37.984mn shares (10% of total paid-up capital) out of their existing shareholding where 75% of the offer would be subscribed through book building on Jun 18’13 and June 1913 followed by subsequent listing of the company on KSE and LSE.

According to AKD Securities Lalpir Power operates a 350MW RFO based power plant with an average utilization level of 62% during CYO8-CY12. The company has a strong payout history where average payout ratio for CYO8-CY12 has clocked in at a robust 105%, translating into average dividend yield of 27% for the period.

Based on the offered floor price of PkRI 5/share, Lalpir Power is set to trade at a CY12 PIE of 3.94x, discount of 56% to average AKD universe Power Sector peers while impending power sector reforms could increase utilization levels going forward potentially translating into higher payouts.

The Transaction: The Sponsors of Lalpir Power Ltd are conducting an Offer for Sale (OFS) of 37.984irin shares (10% of total paid up capital) out of their existing shareholding of the company to institutions and the general public.

In this regard, 75% of these shares (28.488mn) would be offered via Book Building at a floor price of PkRl5lshare, implying a premium of PkR5/share over par. The offer also comprises of a green shoe option up to an additional 1 8.992i un shares and will be subsequently listed on KSE and LSE.

About the company: Lalpir Power Limited (formerly AES Lalpir Pvt Limited) has a net capacity of 350MW and was established under the 1994 Power Policy. The company has been operational since 1997 and was acquired by a consortium comprising NML, AICL, Security General Insurance Company, Mian Hassan Mansha, Engen Pvt Ltd. and Stanhope Investments. With an RFO plant, Lalpir Power has operated at an average utilization of 62% while utilization for CY12 was 55% with an efficiency level of 37%.

Lalpir Power Ltd. Summary of Financial Highlights

(PkRmn)                             FY08       FY09    FY10      FY11     FY12

Revenue                             20,880   19,390   17,968   29,670   32,907
Gross Profit                         2.556     2634    1,624    2.386    2,491
PBT                                  1,156     1840     1478     1432    1,446
PAT                                   1152     1829    1,508    1.432    1,446
Non Current Assels~                   8008    7,544    7,624    7,872    8,394
Current Assets                       7,701     8282    9.868   11,640   14,440
Total Assets                        15,710    15826    17492   19,512   22,834
Total Equity                         9.594    11050   12.262   11,967    12205
LT Liabilities                          44       21       10       13       14
Current Liabilities                  6.701     4754     5220    7.532   10,615
Total Equity and Liabilities         15,709   15,825   17,492   19,512   22,834
EPS (PkR)                             3.34     5.30     4.37     4.15     4.19
Book Value Share (PkR)                  28       32       36       35       35
No. of Shares(ex-bonus)                345      345      345      345      345

Source: OFS Dovumnet and 41W RLeakh

Financial Performance: With a 5-year NPAT CAGR of 6%, Lalpir Power has a strong dividend payout history. In the CYO8-CY12 period, the average payout ratio comes to 105% which brings trailing average dividend yield during the period to 27%. Moreover, based on CYI2 results, the company offers a trailing dividend yield of 19% as compared to the average AKD Universe power sector CY12 D/Y of 10% and KSE-100 Index CY12 D/Y of 5%.

Relative valuation: Based on the offer floor price of PkR15/share, Lalpir Power is set to trade at a CY12 PIE of 3.94x, implying a discount of 56% to average AKD Universe Power Sector CY1 2 P/E of 9x. Moreover, Lalpir Power’s implied CY12 P/B multiple of 047x iuriplies a discount of 79% to peers.

Going forward, with impending power sector reforms to ease liquidity concerns across the power sector (Lalpir’s receivables as at CY12 stood at a sizable PkRIO.7bn), company may witness healthy earnings growth with a potential increase in utilization level, translating into higher payouts.