KARACHI, Nov 22: On Thursday, the Board of directors of Sui Northern Gas Pipelines Limited (SNGPL)— the bigger of the Sui twins— announced financial figures for the year ended June 30, 2003 together with those for Q1 of the current financial year.

For financial year 2003, the company posted 7 per cent growth in after tax profit to Rs2,014 million, from a year ago taxed profit amounting to Rs1,887 million. The Board also declared cash dividend at 22 per cent (Rs2.20 per share), compared with 20 (Rs2 per share) distributed last year. The results and dividend fell within the expectations of most equity analysts. Both First Capital and Capital One stock brokerage firms had projected 7 per cent improvement in bottomline. While the former had anticipated dividend to fall within the range of Rs2.5 to Rs3 per share, the latter was looking at cash payout between Rs2.2 to Rs2.5 per share.

It may be recalled that the company had resumed cash payouts from 2001, after nine blank years. Annual general meeting (AGM) has been called on December 29 at Lahore. Share transfer books would close for 14 days from December 16 to December 29 (both days inclusive).

Sui Northern Gas Pipelines has paid-up capital of Rs5 billion, in 500 million shares of Rs10 each. Sixty per cent of the total stock in the company is held by the Government of Pakistan, while the balance 40 per cent represents free float. At the current market price of Rs38.75, the stock is trading on a multiple of 9.6 times the 2002 earnings per share of Rs4.03, which is relatively higher than the market price-to-earnings (p/e) ratio of 8.5x. On the current price the stock offers dividend yield at 6-7 per cent.

Gas sales revenue at Rs43.9 billion for the year ended June 30, 2003 represented 12 per cent increase over revenue of Rs39.3 billion earned the year earlier. After deducting gas development surcharge of Rs3.2 billion— about a billion rupees less than last year’s Rs4.1 billion, net sales amounted to Rs42.5 billion (2002: Rs37.9 billion). Murad Ansari, sector analyst at KASB Securities observed that sales had exhibited growth of 12 per cent year-on-year on the back of increased volumes and a slight increase in gas tariffs during FY03. Gas tariffs were increased in the beginning of the FY03 as part of the gas sector reform programme.

In addition, the government had also adjusted its Gas Development surcharge to ensure 17.5 per cent return to the gas utility. Abdul Azeem, analyst at InvestCap said that due to the rising supply of gas in the country, SNGPL had spent Rs17-18 billion over the last five yeas (FY99 to FY03) and the company was planing to invest a further Rs34 billion (over the five years) to expand its infrastructure for gas distribution.

Therefore, with a fixed 17.5 per cent return on average net operating assets, the company’s profitability was expected to be impacted favourably. Sui Northern has also benefited from the sharp drop in interest rates. The significant amount of financial leverage, as visible by debt-equity ratio of 64:36, had enabled Sui Northern to benefit from reduced financial charges, which had declined 10 per cent to Rs1,531 million for the year under review, from Rs1,398 million the year earlier.

Sui Northern Gas Pipeline’s ambitious capital expenditure plan would require Rs34 billion over the next five years (FY04 to FY08).

Mohammad Fawad Khan, analyst at First Capital observes that while the realization of Sui Southern’s Rs34 billion capital expenditure plan largely hinges on proposed gas lines from Middle East largely, Sui Northern can increase its asset base by enhancing Transmission and Distribution (T&D) in the far-flung areas of the country’s North. The analyst’s major concern was the T&D losses which had remained as high as 8 per cent in FY02.

These had been brought down from 8.87 per cent the year earlier, but was considerably higher when compared with the international stand of 2-3 per cent. Passing of management to private sector could result in enhancing efficiency of the gas utilities. But privatization of the Sui twins does not look to come about in fewer than four years.