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Energypac’s profit trips 50% ahead of its stock market debut

  • Published at 12:44 am January 19th, 2021
Energypac IPO

The diversified end-to-end engineering solution provider logged in net profit of about 6.7 crore in the first quarter of its 2020-21 financial year, down about 50% from a year earlier

On the eve of its debut on the bourse, Energypac dealt some bad news for its investors: its net profits tumbled 50 per cent between July and September.

The diversified end-to-end engineering solution provider logged in net profit of about 6.7 crore in the first quarter of its 2020-21 financial year, it said in a posting on the website of the Dhaka Stock Exchange on Monday.

This was not wholly unexpected though.

The company’s products and services are deeply intertwined with the level of economic activities, which have been brought to a screeching halt on March 26 to slow the spread of the coronavirus and are yet to roar back to pre-pandemic levels.

Energypac is engaged in supplying gas and diesel generators and provides rent, solar panel, accessories & turnkey solutions; procures independent power plant and operates and maintains them; transmits and distributes power; runs CNG refuelling station and conversion kits; imports and markets commercial vehicles, machinery and materials, spare parts, installation and service in Bangladesh and overseas; manufactures pre-engineered buildings and has entered the liquefied petroleum business.

Construction activities are not going on in full swing – yet, said recent research of Brac-EPL.

Particularly hit would be pickup sales, which contribute to upwards of 12 per cent of Energypac’s revenue, the report said.

“In the first half of 2020, pickup sales in the industry declined by 26.8 per cent, and we expect this industry to recover slightly in the second half of the year,” it said.

Moreover, more than 70 per cent of commercial vehicle sales incur on an accrual basis and local pickup drivers may not be able to pay their monthly equal monthly instalments on time due to the countrywide economic slump. 

“Certainly, it will increase Energypac’s bad loan provision, working capital requirement and interest expense,” it added.

Contacted, Humayun Rashid, managing director and chief executive officer of Energypac, attributed the significant fall in earnings on the two-and-a-half-month-long countrywide general shutdown. 

“The economy took a while to get going again, so our sales were lower during the period,” he said, adding that sales picked up in the following quarter.

The disclosure would calm the nerves of shareholders of Energypac, which makes its trading debut on Tuesday.

Energypac raised Tk 150 crore from the public through the book-building method.

The cut-off price of Energypac Power shares had been fixed at Tk 35 each.

The general investors, who got the shares at a 10 per cent discount, placed orders 10 times their allotted amount.

Investors booked shares worth about Tk 662.5 crore against the Tk 62.5 crore allocated for them.

The bulk of the proceeds from the initial public offering would go towards ramping up the three-year-old LPG business G-Gas, which has a promising future ahead due to fast depletion of natural gas.

For instance, Energypac’s sales almost tripled in 2018 due to the start of the LPG business in 2017, according to Brac-EPL.

LPG has emerged as an alternative to natural gas and is likely to be popular as an alternative automobile fuel due to its cost-effectiveness and environment-friendliness.

The current LPG industry size is 0.9 million tonnes, and it is expected to reach 2 million tonnes by 2025, implying a compound annual growth rate of 15.3 per cent. 

Bashundhara LP Gas is the market leader in the industry with a total storage capacity of 3,000 tonnes and a daily refill capacity of 50,000 cylinders. 

While Energypac has the same storage capacity as Bashundhara, its daily refill capacity of about 3,500 cylinders pales in comparison to the number one player.

Another storage facility is under construction, whose capacity would be 2,000 tonnes.

The company would use Tk 26.2 crore of the IPO proceeds to procure LPG carrier and accessories, Tk 52.3 crore for importing LPG cylinders and another Tk 17.6 crore for purchasing material for LPG cylinders.

Loan repayment would take up the next biggest chunk from the IPO proceeds.

Energypac and its subsidiaries are highly leveraged, said the Brac-EPL report. 

The company has interest-bearing liabilities of Tk 2,044 crore. 

As of March 2020, its debt to equity and debt to assets ratio was 317.5 per cent and 57.5 per cent respectively.

It initially borrowed fund at an average rate of 12.5 per cent, so the implementation of the single-digit interest rate from April last year is likely to be advantageous for the company.