The Pakistan Credit Rating Agency Limited
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Muhammad Mubashir Nazir

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PACRA Maintains Entity Ratings of LalPir Power Limited

Rating Type Entity
(28-Sep-23 )
(30-Sep-22 )
Action Maintain Maintain
Long Term AA AA
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect the regulated structure of Lalpir Power Limited (Lalpir Power) business; whereby revenues and cash flows are guaranteed by the sovereign government given adherence to agreed operational parameters. A risk of any decrease in efficiency factor against the required benchmark would be borne by the Company itself given the fact, that Lalpir Power is managing its operations and maintenance (O&M) in-house. During the period under review, Lalpir Power continues to meet its availability and other performance benchmarks. During 6MCY 23 Lalpir power generated 106Gwh of electricity as compared to 545Gwh same period last year depicting a decline of 80.5%. This decrease in generation is mainly attributed to the shift of electricity demand towards a less expensive source of generation i.e., Hydro, Solar, Wind, and Biogas from the power purchase in the wake of a cost-effective energy basket. The same trend is expected to be followed in upcoming periods. During 6MCY23 the top line of the company reported PKR 8,491mln (CY22: PKR: 37,611mln. 6MCY22: PKR: 21,942mln). Despite the fall in revenue, margins benefitted from lower load factors, appreciation of USD against PKR, and lesser utilization of short-term working capital lines. Gross and Net margins for 6MFY23 clocked to 30% & 25.9% respectively. Currently leveraging stood at 5.2% representing short-term borrowing only (CY22:20%). There is adequate cushion available to the company to meet its working capital requirement in its approved STB limits. The ratings stemmed from the fact that the long-term debt of the company was fully paid successfully in June 2010.
Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Delay in receiving the amounts from Power purchasers owing to the accumulation of circular debt remains a cause of concern. The PPA of the Company is expected to expire in CY 28, the Company plans / strategy in upcoming years with reference to utilization of plant after expiry remains imperative for the ratings, going forward. Any change in regulatory requirements may affect the ratings.

About the Entity
Lalpir Power Limited was established for electricity generation under the power policy 1994 as an Independent Power Producer (IPP). The plant, with a total project cost of USD 347mln, is located at Mehmood Kot, near Muzaffargarh (Punjab), and has an installed capacity of 362MW. The project has a remaining life of approx. 5 years under the PPA. The Company has entered into a contract for a period of thirty years for the purchase of fuel from PSO. Lalpir Power is listed on the Pakistan Stock Exchange. The major shareholder of the company is Nishat Group (64.75%) through individuals, associated companies, and related parties. Mian Hassan Mansha, heading the Nishat Group's interest in the power sector, is the Chairman of the board. All the board members are seasoned professionals with having interest in various sectors of the industry. The management team comprises of qualified professionals possessing sufficient experience in the power sector.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.