K-Electric

Financial Analysis of K-Electric

Hadaythullah Submitted to Sir Aun Ali (Assistant Professor Hamdard University)

13

Financial Analysis of K-Electric

Abstract
The objective of this report is to present the financial analysis of K-Electric, formally known as Karachi Electric Supply Company. The data used for these analyses are of year ended 2012 and 2013. For this purpose vertical,horizontal and ratio analysis have been used.

Company Overview
K-Electric, formerly known as Karachi Electric Supply Company Limited and commonly referred to as KE is a vertically integrated electric corporation involved in generating, transmitting and distributing power to around 20 million inhabitants of Karachi. It employees over 11,000 people and covers an area of 6,500 square kilometers with industrial, commercial, agricultural and residential areas falling under its network. K-Electric was incorporated on 13 September 1913. In 1952 the Government of Pakistan took control of the Company by acquiring majority shareholding of KESC. In 2005, the Government of Pakistan privatized K-Electric. The Government still holds 25.66 per cent of the KE shares. K-Electric is listed on all the three stock exchanges of Pakistan. Horizontal Analysis Comparing two years financial statements or comparing one companys financial statements with other company is called horizontal analysis. If you are comparing sales of two years you will find the difference in sales between two years in % as well as in $. K-Electric Profit and Loss Account (Rs '000,000) For the year ended 30 june 2013
Total sale 189.0 EXPENDITURE Purchase of electricity (78.4) Consumption of fuel and oil (67.8) Expenses incurred in generation, transmission and distribution (14.0) (58.6) (13.3) (50.7) (14.5) -35.88% -7.41% -35.99% -8.17% 15.72% 5.24% 15.59% -8.15% (74.7) (65.3) -41.47% -45.85% 4.97% 14.34% 162.8 130.7 100.00% 100.00% 16.08% 24.55%

Analysis

2013

2012

2011

Verticle 2013 2012

Horizental 2012-13 2011-12

GROSS PROFIT Consumers services and administrative expenses Other operating expenses Other operating income

28.8 (15.4) (0.6) 5.1

16.3 (12.2) (0.9) 7.1 10.3 (7.7) 2.6 2.8 0.1 2.6

0.2 (9.8) (0.2) 4.9 (4.9) (5.1) (10.1) 0.7 (9.4)

15.25% -8.15% -0.34% 2.69% 9.45% -7.39% 2.07% 1.49% 3.56%

9.99% -7.50% -0.56% 4.39% 6.31% -4.73% 1.58% 0.03% 1.61%

77.26% 26.04% -29.00% -28.71% 73.93% 81.25% 52.00% 5354.23% 156.78%

6419.74% 24.49% 275.45% 46.30% 308.47% 50.22% 125.55% -92.16% 127.90%

OPERATING PROFIT 17.9 Finance costs (14.0) PROFIT BEFORE TAXATION 3.9

NET PROFIT FOR THE YEAR 6.7

EARNING PER SHARE BASIC EARNING PER SHARE DILUTED

0.26 0.26

0.11 0.11

(0.44) (0.39)

The above analysis of income statement has been made for three years, first the comparison is between 2013 and 2012 and then 2012 and 2011. The above analysis shows that the net income has gone up in the year 2013by around 157% as compared to 2012, while it had gone up by around 128% in 2011 as compared to 2010. This drastic change is due to tax reversal by ATIR and other tax adjustments. In this situation and for better analysis, Profit before tax should be considered. Although PAT has been increased by 52 % in 2013compare to 2012, but it is not good enough as compared to 2012 because it was increased by around 126% compare to 2011. Despite a good increase in sales in 2013 as compared to 2012 which is around 21% and 8% respectively, and control on manufacturing and non-manufacturing cost in 2013 and 2012 12.19% and 12.46% respectively, Company has not increased its earning as it could because its financial cost is increased in 2013 as compared to 2012 by around 81% while it was around 50% in 2012 as compared to 2011. This drastic increase in cost is because of surcharge on late payment and markup which are Rs 3,099,774 and Rs 2,692549 respectively.

K-Electric Balance Sheet As at 30 June 2013 2013 (Rupees in '000,000) ASSETS

Operating fixed assets Intangible assets 0.5 Long-term loans and advances 0.0 Long-term deposits and prepayments 0.1 163.7 163.0

2012

2011

Analysis Vertical Horizontal 2012-13 2011-12 2013 2012

169.0 0.0 0.0 0.1 169.2

167.5 0.0 0.1 0.0 167.6

58.38% 62.01% 0.18% 0.01% 0.04% 0.01% 0.02% 0.04%

-3.56% 2540.70% -16.28% -11.88% -3.28%

0.92% -16.62% -19.76% 543.85% 0.97%

58.61% 62.08%

CURRENT ASSETS
Stores, spare parts and loose tools Trade debts Other receivables 44.9 Cash and bank balances 0.8 115.6 1.2 103.4 1.3 68.8 46.2 6.6 63.3 6.1 49.9

2.37% 2.24% 22.66 39.8 % 18.30% 16.08 21.5 % 16.94%

6.1

8.62% 26.82% -2.81% -33.23% 11.82%

-0.58% 25.27% 114.52% -6.69% 50.32%

0.28%

0.43%

41.39% 37.92% 100.00 % 100.00 %

TOTAL ASSETS
279.2 272.6 236.4

2.44%

15.33%

EQUITY AND LIABILITIES

Share capital 96.3 Reserves Capital reserves 0.5 Share premium 1.5 Revenue reserves 5.4 Accumulated losses (74.3) Other reserve (82.9) (87.3) 5.4 5.4 0.5 0.5 93.0 80.3

34.47% 34.10%

3.55%

15.71%

0.18%

0.19%

0.00%

0.00%

1.92% 1.97% 26.60% 30.40% -0.18% -0.23%

0.00% -10.36% -21.07%

0.00% -5.13% -53.40%

(0.5) (67.4)

(0.6) (77.6) 15.4 27.1

(1.3) (82.8) (2.4) 29.0

24.13% 28.47% 10.34% 9.04% 5.64% 9.94%

-13.17% 88.01% -6.86%

-6.27% 527.26% -6.42%

TOTAL EQUITY
28.9 SURPLUS ON REVALUATION OF PP&E NON-CURRENT LIABILITIES Long term financing Deferred revenue 15.6 Deferred tax liability 13.6 64.5 14.6 83.8 15.6 89.2 16.1 16.1 25.2

24.9

43.2

47.2

8.92% 15.84% 5.59% 4.87% 5.91% 5.35%

-42.34% -3.12% -6.86% -23.08%

-8.43% -0.26% -6.42% -6.04%

23.08% 30.74%

CURRENT LIABILITIES
Current maturity of long term financing Trade and other payables Accrued mark-up 5.8 Short term borrowings Short term deposits 37.6 6.1 23.4 5.4 160.7 146.3 272.6 21.4 8.2 120.7 236.4 3.7 5.0 15.0 96.2 14.2 98.9 10.5 75.3

5.36%

5.22%

5.26% -2.71% 54.47% 60.58% 12.97% 9.79% 2.44%

35.46% 31.33% -25.34% 9.57% -34.43% 21.26% 15.33%

34.46% 36.28% 2.07% 13.47% 2.18% 1.37% 8.59% 1.98%

57.54% 53.68% 100.00 % 100.00 %

TOTAL EQUITY AND LIABILITIES

279.2

Increase in total assets in 2013 is around 2.5% as compared to 2012, while in 2012 it increased by around 15% as compared to 2011. Increase in total asset is due to increase in trade debt by around 26% and 25% in 2013 and 2012 respectively and increase in intangible assets by Rs 0.5m in 2013 includes purchased of ERP , SAP and Antivirus softwares. Companys fixed assets have been depreciated and no new assets have been acquired this year.Increase in equity is around 88% in 2013 as compared to 2012 and 527% in 2012 as compared to 2011. In 2012-13, K-Electric has drastically reduced its debt financing as compared to 2011-12 that is around 23% and 6 % respectively , and increase its equity financing Company by around 88% by issuing new share to general public at par value of Rs 3.5 each on a premium and through

increasing net-income company has reduced its accumulated loss by around 10.5% and 5% in 2013 and 2012 respectively.

Vertical analysis
Vertical analysis of an income statement results in every income statement amount being presented as a percentage of sales and every amount on the balance sheet is restated to be a percentage of total assets. Income statement The above analyses made for two years, thats , 2013 and 2012 , it shows that net income of year ended 2013 is around 3.5 % of total sale whereas compared to 2012 it was around 1.6 %. Company has increased its sale as compared to last year and it has efficiently control its cost of sale, comparing cost of sale of year 2013 and 2012 is around 85% and 90% respectively. Company has increased its percentage of financial cost as compared to 2012 that is , around 9.5% and 6.5% in 2013 and 2012 respectivly. Balance sheet These results indicate the company shifted toward equity financing by relying less on debt by increasing the amount of share capital and decreasing its accumulated loss. Although company increase its total assets by only around 2.5% as compared to 2012, but it has significantly changed its capital structure, which is now around 81:19, comparing 2011-12 it was 85:15 . Above analyses shows that fixed has been reduced as compared last year 62% in 2011-12 to 58% in 2012-12 but current asset has been increased, 41% and 38% respectively, this increase is due to inventory and trade receivables.

Ratios
Current ratio Quick ratio cash ratio
times interst earned Debt to Equity ratio debt ratio Net Prot to Sales Return on asset Return on equity equity multiplier Account Receivable Turnover 0.72 0.71

times times times times times

0.68
0.0068 1.28 4.16 81% 3.56% 2% 12% 5.16 3.34

0.66
0.0115 1.33 5.42 84% 1.61% 1% 6% 6.42 3.63

times times

Account Receivable Turnover in days Inventory turnover Inventory turnover in days Asset turnover p/e ratio market to book ratio degree of financial leverage degree of operational leverage 25.38 3.21 4.58 1.61

109.25 25.15 14.51 0.69 30.91 3.64 4.00 1.58

100.55 23.94 15.25 0.64

days times days times

Most of the above ratios shows stability but some of them shows improvement and growth. The liquidity position of the company seems to be weaker as current ratio is 0.72, quick ratio is around 0.68 and cash to current liabilities is even in adverse position. Companys solvency position seems improved, it has reduced its debt but still unable to increase its TIE ratio, its debt/equity and debt ratio is decreased that is 81:19 and 81% respectively. Profitability ratio shows growth , company efficiently utilized its asset because its sale is increased much higher percentage than its asset and due to which, margin on sale comparatively increased by around 2%. Despite of increased in equity and decrease gearing , its ROE is increased by 6% comparatively. Conclusion and Recommendation The nature of K-Electric is monopolist it has no compitetor in its operating area but to determine the strength of the company one has to look for its size in terms of total sales in Rs and area of its coverage. Its sales is growing for last few years and its converted its net loss in a growing profit. Despite of decrease in fixed assets, sales is growing, which shows the company is utilizing its assets (which is discussed above).Issuing bonus share shows the company is not in a good liquidity position and it plans for capital gain (growth) and it is facing problem for payment of cash dividend. Reference http://www.brecorder.com/top-stories/single/595/0/1108633/ http://tribune.com.pk/story/419447/corporate-results-kesc-switches-to-profit-after-six-years-oflosses/ http://www.moneyhub.net/scripts/cgiip.wsc/globalone/htm/quote_and_news.r?pisharetypeid=253015 http://www.pc.gov.pk/hot%20links/PSR/5th%20OCT/2-KESC%20Presentation.pdf