class of mba 19 a iiui 2011

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