Sui Northern Gas Pipelines Limited

Economic Review, April, 2001 by Dilawar Hussain

SNGPL is one of the prime privatisation plays, with its LPG business proposed to be separately sold before the end of the year 2001. Sixty per cent of the total stock in the company is held byhe Government of Pakistan, While the balance 40 per cent represents free float.

Delayed by about three and a quarter months, Sui Northern Gas Pipelines Limited (SNGPL) announced the financial figures for the year ended June 30, 2000. The company posted an aftertax profit of Rs.527m, reflecting 23.7 per cent growth over taxed profit at Rs.426m the previous year. The bottom line emerged better than what most analysts at the market had expected. But for many a small shareholders in this gas utility, the board's decision to skip a cash dividend yet again may have come as a disappointing news.

Cash payouts though a regular feature until 1990, nothing has teen paid in cash perhaps for the last ten years - after the 1990 payout at 23 per cent. The company has, however, continued to disburse bonus shares. In line with the trend of the past several years, the board, on Monday, recommended bonus capitalization at 15 per cent for the year 2000. Annual General Meeting (AGM) has been called on May 22, at Lahore.

The price of the 10-rupee share in SNGPL swayed between the high and low prices of Rs.25.60 and Rs.9.25 during calendar 2000. It is now trading at small premium over the par value, the scrip marked its career best at Rs.67.25 in 1994.

The major improvement in the 2000 after tax profit came from the considerable decrease of 21.5 percent in financial charges to Rs.2,717m, from Rs.3,463m the previous year.

The directors' report to the shareholders when released would tell precisely how the company managed to reduce the financial costs. It is assumed, however; that lower interest rates during the year, lesserinvestment in capital expenditure and the company's ability to swap a couple of high interest loans for low ones, may have been behind thewelcome decline.

Under the current return formula, the Government assures 17.5 per cent of operating assets as the Earning Before Interest and Tax (EBIT) to SNGPL; thus, if sales revenue is not high enough to meet expenses and provide the assured return, the Government has to inject funds under the Gas Development Surcharge (GDS) head, and vice-versa.

Owing to bigger volume and increased prices of gas at the retail level, gross sales at SNGPL increased by 29.2 per cent to Rs.26,570m, from Rs.20,577m in 1999. However, cost of gas sold rose by a faster 50 per cent to Rs.16,627m, from Rs.11,088m, resulting in 38.8 per cent decrease in GDS to Rs.1,020m, from Rs.1,666m.

At the level of EBIT (at which the 17.5 per cent return on operating assets is allowed), the company posted 4.4 per cent decrease to Rs.4,082m, from Rs.4,773m. Netsales forthe year under review increased by 35.1 per cent to Rs.25,550m, from Rs.18,911m the previous year. Gross profit was up 14.1 per cent to Rs.8,924m, from' Rs.7,823m. Rental and service income contributed Rs.530m, 86.7 per cent more than Rs.284m the earlier year.

Profit before tax was up 68.4 per cent to Rs.1,365m for the year under review, from Rs.811m in 1999. Provision for taxation showed a huge 117.6 per cent increase to Rs.838m, from Rs.385m with the effective tax rate working out at 61 per cent, from 48 per cent in 1999. The increase in the tax rate appear to be due to provisioning under the International Accounting Standard (IAS)-19, which requires provisioning to be made for employee benefits payable in the future.

SNGPL is one of the, prime privatisation plays, with its LPG business proposed to be separately sold before the end of the year 2001. Sixty per cent of the total stock in the company is held by the Government of Pakistan, while the balance 40 percent represents free float.

Trading at 8.4 times the 2000 earning per share at Rs.1.21, the SNGPL scrip has the potential to shore up in response to its ambitious capital expenditure plans, though slower progress on the privatisation front is a dampener. The company is understood to have expansion plans that would require around Rs.15 billion in the next three year period.