OGRA Approves 88% of SNGP’s Finance Cost as Pass-Through for FY23
Staff Report:
In a positive development, OGRA has allowed 88% of the requested finance cost for FY23 as a pass-through in the Motion for Review of the Final Revenue Requirement filed by SNGP.
To highlight, previously OGRA had pending the finance cost as a pass-through in FY23 until the provision of an independent auditor’s certificate for FY23.
OGRA has now allowed 88% of the finance cost after SNGP submitted the Independent Auditor’s certificate. This is based on the understanding between the authorities, as communicated in the March 15, 2023 directives, that the finance cost will be allowed to the company to the extent of the outstanding differential amount related to RLNG diversion, RLNG sales at subsidized rates (fertilizer, export-oriented), and receivables stuck in the power sector as part of circular debt, subject to the provision of the independent audit certificate.Chairman PM Youth Programme Connects with Pakistani Diaspora in Dushanbe
SNGP had requested the allowance of Rs 9.7bn in finance cost as a pass-through, while OGRA has allowed Rs 8.5bn.
Implication for FY25 Accounts: On December 17, 2024, OGRA had already allowed 50% of the finance cost as a pass-through for SNGP in its review of the Estimated Revenue Requirement. Based on this 50% pass-through, our earnings estimate was Rs 17.3/share for FY25. With the recent development allowing 88% of the finance cost as a pass-through, earnings estimates for FY25 are now expected to rise to Rs 26.5/share, which translates into a FY25E PE of 3.9x.
Why Finance Cost Will Be Allowed in FY25 (Our View): Based on the above directives, finance costs can be allowed as a pass-through if the financing is raised or being used to service the circular debt shortfall or to cover the differential arising from RLNG diversion or subsidy. As of June 2024, SNGP’s revenue shortfall stands at Rs 589bn, and SNGP has requested the allowance of finance for borrowings of Rs 150bn. Of this, SNGP has mentioned that Rs 40bn was borrowed in line with Ministry of Energy directions for onward payment to PSO. We believe that, until a major portion of this shortfall is cleared, OGRA may allow a sizable portion of the finance cost as a pass-through.
We maintain our BUY stance on SNGP as the company is currently trading at a FY25E PE of 3.9x (based on 88% finance cost pass-through,’ Topline said.
