PG-23 Nati (2010).
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NGPL is the largest integrated gas company in the country,
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involved in the distribution and transmission of gas in the north of
the country, besides construction of high-pressure transmission and
low-pressure distribution systems. SNGPL was incorporated as a private
limited company in 1963. Later, in 1964, it converted into a public limit-
ed company. It is listed on all three stock exchanges of the country.
SNGPL’s transmission system extends from Sui to Peshawar in NWFP.
The company’s distribution system comprises of 46,964-km of pipeline,
spreading over 831 main towns and adjoining villages.
The company extended its distribution network by over 8,200-km, in
addition to 237-km of high-pressure transmission lines, by adding 377
new towns, villages and tehsil Headquarters in its existing system. Gas
supply was commissioned for Independent Power Producers (IPPs): Saif
Energy and Sapphire, in order to help alleviate power crisis in the coun-
try. As an Engineering, Procurement and Construction (EPC) contractor,
SNGPL constructed and commissioned pipelines for MOL and Oil and
Gas Development Company Limited (OGDCL) to receive 265MMCFD
gas from Manzalai and Makori-3 fields (Khyber Pakhtunkhwa) and
18MMCFD from Nashpa Field, respectively. A gas pipeline project was
also completed by SNGPL for Engro Energy as an EPC contractor.
Recent results (3Q11)
The gas sales for the nine months ended March 31, 2011 were 440,145
MMCF as against 439,000 MMCF during the same period last year. Net
sales figure stood at Rs. 140 billion as compared to Rs. 139 billion in the
same period last year. Other Operating income increases to Rs. 5.9 bil-
lion as compared to Rs. 5.4 billion in the same period last year. Operating
expenses, especially the selling expenses increased, pushing the operat-
ing profit down. Financial charges declined to Rs. 2.8 billion from 3.6
billion in the same period last year. PAT of Rs. 415 million was earned
(March 31, 2010: Rs. 445 million), giving an EPS of Rs. 0.76 (March 31,
2010: Rs. 0.81). UFG was recorded at Rs. 12.11% as compared to 9.44%
for the same period last year.
Recent performance (FY10)
Ogra raised the benchmark for the Unaccounted-For-Gas to 7% against
the upper and lower target of 5.50% and 4.50% respectively fixed earlier.
Furthermore, the Late Payment Surcharge (LPS) was also allowed as
non-operating income of the company. Revision of UFG benchmark and
allowance of LPS as non-operating income positively impacted the earn-
ings per share of the Company, from 1.69 to 4.65.
Gas sales in FY10 were 7.64% higher than sales of FY09, with only a
marginal increase in volume. However, net sales decreased by 4.32% due
to increase in gas development surcharge. Due to decrease in net sales
and increase in cost of gas sold, gross profit declined by 68.10%. But the
significant decrease in operating expenses of 74.66% due to the UFG
respite, combined with huge increase in other income of 542% which
was mainly interest income on late payment of gas bills, there was an
overall positive effect of 70.66% increase in operating profit.
Financial charges showed a significant increase of 611%. This was due
to interest payments due to late payment to gas suppliers of the value Rs.
3,882,924,000. Taxation also showed a significant increase due to cate-
gory of ‘current tax’ amounting to Rs. 873,859,000. However the
increase in operating profit was sufficient to cover the finance cost and
taxation, leading to a net 174% increase in net profit.
Industry overview
SNGPL significantly has higher long-term liabilities of Rs
58,380,114,000 compared to the average in the industry of Rs
44,218,047,000. A look at the balance sheet shows that the main contrib-
utor is deferred credit, suggesting that SNGPL is not adequately manag-
ing its payments due to gas suppliers. However SNGPL has invested
more in fixed assets i.e. Rs. 87,462,235,000 while the industry average is
Rs. 65,193,535.
SNGPL also has higher sales compared to the industry average, which
is indicative of a strong standing in the industry. SNGPL’s net sales are
Rs. 161,628,828,000 while industry net sales are Rs. 136,951,723,000.
However the profit scenario is discouraging as SNGPL, despite having
higher gross profit, has lower operating and net profit. This suggests that
the company is not managing its operating costs effectively, leading to
Page 1
Brief recordings
Sui Northern Gas Pipelines Ltd
Analysis of Financial Statements
FY’04—3QFY’11
inefficient operations. Net profit for the industry is Rs. 3,476,854,000 1.75 per share. The P/E ratio is 6.15 as against 4.29, which shows that the
while for SNFPL it is Rs. 2,554,563.
Beta analysis of the company shows that beta of SNGPL is 0.88. As future.
the beta is close to market beta of 1.00, it shows that the stock prices of
SNGPL vary almost in congruency with market stock prices, which sug-
gests a stable SNGPL stock.
The figures and ratios of SNGPL compared favourably to the industry
average.
Profitability ratios
All the ratios are lower than the industry average indicating low prof-
itability due to operating inefficiencies. Net profit margin is 0.02 com-
pared to industry average of 0.03. However, the gross profit margin of
SNGPL is equal to industry average, indicating that operating losses
occur during the operating expenses stage.
Debt management
Debt to equity ratio is 6.40, slightly lesser than the industry average of
6.64. This shows that the company is less leveraged as compared to com-
petitors. However the TIE ratio of 1.97 is lower than the industry average
of 2.18, due to lower profits of the company.
Liquidity
The current ratio 0.83 is lower than the industry average of 0.92 due to
lesser current assets of SNGPL. However the quick ratio is 0.73, higher
than the industry average of 0.70, due to high amount of receivables of
SNGPL.
Efficiency: The operating cycle takes 102 days against the industry
average of 127 days. Consequently the inventory turnover ratio is higher
than the industry average. This shows that the company has an efficient
working capital cycle. Total assets turnover is also higher at 1.17 com-
pared to industry average of 1.09, but fixed assets turnover is lower at
1.87 compared to 2.28, suggesting that a sufficient amount of sales are
not being made according to the amount of fixed assets.
Investment
The Company has a lower EPS of Rs. 4.65 per share as against Rs.
5.60 per share, but a higher market value of Rs. 28.59 per share as against
Rs. 22.25 per share and offers a dividend of Rs. 2 per share as against Rs. tion use and for electricity generation purposes as hydel power generation based on the [above information].
BUSINESS RECORDER KARACHI THURSDAY 5 MAY 2011 23
has been shut down for maintenance. Moreover, the IPI gas pipeline pro-
ject is not yet finalised due to disputes in government. This has put pres-
sure on the existing gas supplies in the country. In Northern areas people
are facing gas shortage.
stock is undervalued. Its market price has potential to increase in the
As far as SNGPL is concerned, a pipeline construction project in order
to extend gas supply to Talash area in Lower Dir has also been started.
Moreover, construction activities for laying distribution mains under
Annual Distribution Development Program for various localities/villages
across Punjab and Khyber Pakhtunkhwa are being carried out.
Profitability
The operating expenses decreased from Rs 16,734,729,000 to Rs
4,239,910,000 over FY09-10, leading to major change in the revenue-
expense structure.
The profitability ratios, which had declined in FY09, recovered in
FY10. The return on equity rose from 0.06 to 0.14. Return on assets and
net profit margin showed a similar trend. The gross profit margin
declined from 0.10 to 0.03 due to rise in the cost of gas. The EBITDA
margin rose from 0.04 to 0.07. Qadirpur Interim Compression project of national importance is also
Liquidity being carried out by SNGPL as contractor for OGDCL. After completion
The current ratio of the firm have declined and stayed constant at 0.83 of this compression project, 100MMCFD gas will be re-claimed and
in FY10, illustrating that the firm may experience problems in financing injected into SNGPL’s transmission network. Pipeline job for removing
its short-term obligations given that the net income for the period has also operational constraints in transmission network is expected to be started
declined. SNGPL is experiencing liquidity risks due to an increase in in near future after approval of Ogra to rectify diminishing gas supplies
debtors; increase in dollar value and due to a shortage of funds. to Murree from Pothohar gas fields and low gas pressures in winter sea-
Asset management son in areas like Lala Musa/Jehlum, by connecting Faisalabad-Lahore-
The sales to equity ratio declined in FY10 from 10.46 to 8.64. This can Gujranwala line with Faisalabad-Sargodha-Islamabad line.
be attributed to decrease in net sales. Fixed asset turnover has decreased
from 2.16 to 1.87. The total asset turnover showed a similar trend, declin-
ing from 1.38 to 1.17.
Besides this, MOL Pakistan has desired to enter into a five year con-
tractual relationship with SNGPL and have suggested to sign a service
order in this respect. These future projects would be located in Karak,
Hangu and Kohat districts of Khyber Pakhtunkhwa.
The inventory turnover ratio decreased in FY’10 from 7.13 to 5.64.
However the day sales outstanding rose from 55.54 to 96.
Debt management
The TIE ratio declined over FY10 from 8.20 to 1.97. Although the net
income increased, finance cost also increased by a huge amount, thus
causing TIE to fall. The debt to asset ratio did not show significant
change showing no significant change in the debt-asset structure of the
firm, varying from 0.87 in FY09 to 0.086 in FY10. The debt to equity
ratio also declined slightly from 6.58 in FY09 to 6.40 in FY10, due to
slight increase in the amount of debt relative to equity.
The company is also planning to participate in OGDCL’s
Kunnar/Pasakhi Deep and Tando Allahyar integrated development project
which will comprise wellhead surface facilities, gas gathering system, gas
processing plant, dehydration plant and LPG extraction plant. SNGPL is
also exploring business opportunities in Oil and Gas sector in Libya.
Costs, sales volume and sales price projections
Internationally, world oil prices are expected to rise by about 8%,
according to the current futures curve as shown.
Market value The following chart shows the projected gas scenario in Pakistan.
The earnings per share of the company increased from Rs 1.69 per Gas prices vary with world oil prices, with the oil price/gas price ratio
share to Rs 4.65 per share due to improvement in net income. However, being 5.00 thus gas price in Pakistan is expected to rise. This would
the market value per share decreased from Rs. 32.10 to Rs. 28.59. The cause the profit retained by gas companies to rise. However, the Sales
price to earnings ratio fell from a peak of 18.99 in FY09 to 6.15 in FY10, Tax on gas products would decline from 17% to 15% thus partly mitigat-
due to combined effect of higher EPS and lower market value. ing the increase in gas prices.
Investors expectations
Dividend per share increased from 0 in FY09 to 2 in FY10, and the
dividend yield followed a similar trend from 0 to 0.07. The dividend pay-
out ratio also showed recovery from 0 in FY09 to 0.43 in FY10.
Future outlook
The future for gas demand and supply conditions in Pakistan remains
uncertain. The industrial sector suffered from gas shortage during the
winter months, due to increased demand for natural gas in households
during winters.
Economics and Finance Department, Institute of Business
Administration, Karachi, prepared this analytical report for Business
Recorder.
Disclaimer: No reliance should be placed on the [above information]
by any one for making any financial, investment and business decision.
The [above information] is general in nature and has not been prepared
for any specific decision making process. [The newspaper] has not inde-
pendently verified all of the [above information] and has relied on
sources that have been deemed reliable in the past. Accordingly, the
newspaper or any its staff or sources of information do not bear any lia-
The demand for gas has increased due to seasonal demand, transporta- bility or responsibility of any consequences for decisions or actions