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DESCO reports first loss in 10 quarters

Bulk electricity price hike, higher finance cost erode profit in Q2, FY23

FE REPORT | January 31, 2023 12:00:00

Dhaka Electric Supply Company (DESCO) - the state-owned electricity distributor - has reported a loss of Tk 31.71 million in the three months through December 2022 despite a growth in distribution revenue.

DESCO officials cited the bulk electricity price hike, soaring finance cost, the jump in cost of energy sales and lower interest income as major reasons for losses.

The state-run power distributor went into the red in the October-December quarter of 2022 for the first time since January-March 2020 when the company incurred a loss of Tk 278 million.

Energy sales rose 9.25 per cent year-on-year to Tk 12.03 billion in October-December 2022 while the cost of energy purchases was up 10 per cent to Tk 10.38 billion during the period.

The power distributor registered a higher revenue from individual customers as consumption and users increased, but it was not enough to offset the profit erosion caused by other factors, said a company official, requesting not to be named.

Its interest income dropped 14 per cent to Tk 160 million in the three months through December 2022 while administrative expenses rose 15 per cent to Tk 145 million during the period.

As a result, the company's total operating profit plunged by 50 per cent year-on-year to Tk 290 million in Q2, FY23.

Besides, lower consumption at the commercial and industrial level and bulk electricity price hike also eroded earnings, the official said.

The Bangladesh Energy Regulatory Commission (BERC) in November last year increased the average bulk electricity price by almost 20 per cent and fixed it at Tk 6.20 per kilowatt hour effective from December last year. DESCO distributes electricity as per the tariff rate set by the BERC. The company purchases electricity from the Bangladesh Power Development Board (BPDB). The margin between sales tariff and energy purchase cost is the company's distribution revenue.

DESCO purchased bulk electricity from the BPDB at the hiked price, but could not increase the price at the consumer level which choked the profit.

The company earns revenue on issue of bills to the customers for consumption of energy and from demand charge, service charge, and miter and transformer rent.

Meanwhile, the government increased the retail price of electricity by 5 per cent per unit on average at the consumer level from January 1 this year, which will positively impact the company's profit in the coming months.

DESCO's operating profit slashed by half over rising costs of sales as revenue remained flat.

Net profit turned negative as growing finance costs surpassed operating profits, while interest and other non-operating income shrunk, said Salim Afzal Shawon, head of research at BRAC EPL Stockbrokerage, a leading brokerage firm.

Operating revenue was almost flat with 1 per cent de-growth year-on-year while cost of sales increased by Tk 213 million.

Significant deferred tax income of Tk 93 million lowered the loss, said Mr Shawon, adding that it would have been worse if DESCO didn't have deferred tax income in the quarter, which covered up almost 3/4th of loss before tax in the second quarter of FY23.

The state-run company's net profit dropped 60 per cent to Tk 81.95 million in the six months through December 2022. Its distribution revenue went up by 9 per cent year-on-year to Tk 3.34 billion in the period.

But at the same time, its finance costs soared 20 per cent to Tk 648 million in July-Dec 2022. DESCO is one of the six power distribution companies in Bangladesh. In FY22, some 75,643 new consumers were added, taking the total number of consumers to 1.15 million.

Among them, around 91 per cent users are from the household level, 7 per cent from commercial and industrial level, and other consumers make up the remaining 2 per cent.

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Listed in 2006, the stock has been stuck at the floor price of Tk 36.60 since September 27 last year.

In the FY22, the company made a profit of Tk 632.10 million, down 15 per cent year-on-year. It declared a 10 per cent cash dividend for the year.

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