Rising overhead costs eat into Desco profit

The Dhaka Electric Supply Company (Desco) – a listed power distributor – has suffered a severe blow amid the Covid-19 pandemic as its net profit fell by around 69% during the July-March period, compared to the same in FY2019-20.

Desco officials have cited a myriad of reasons behind the dip, but pointed out the decline in revenue from industrial and commercial customers as the primary cause, along with the jump in administrative and other expenses, and bulk electricity price hike.

The distributor's profit stood at Tk17 crore in the nine-month period, a sharp drop from Tk54 crore during the same period last fiscal year – when the pandemic was yet to spread across Bangladesh, reveals the company's financial statement disclosed on Wednesday.

Desco registered higher revenue from the domestic level customers as consumption and users in this category increased gradually during this time, but it was nearly not enough to offset the waning profits caused by other factors.

The distributor's overall energy sales have dropped due to the pandemic. Desco's total electricity sales were 3,891MKH during the July-March period in FY2020-21, which was 3,915KMH in the same period last year.

Though the volume of energy sales have decreased, sales revenue increased to Tk3,144.94 crore from Tk3,037.55 crore due to Bangladesh Energy Regulatory Commission's (BERC) move to hike electricity prices.

Commenting on the profit de-growth, Desco's Managing Director Engineer Md Kausar Ameer Ali said, "Two major factors are the reason behind our falling profit – lower consumption at the commercial and industrial level, and bulk electricity price hike.

"Among our customers, commercial and industrial users are the qualitative segment and we make the bulk of our profits from them. But the energy consumption in these sectors has dropped amid the pandemic, which in turn has impacted our revenue and profit."

He added that Desco's total distribution area had the usual demand of 900MW electricity per day, but it is now hovering near 650MW due to the Covid-19 crisis.

"We are buying bulk electricity from the Bangladesh Power Development Board (BPDB) at a hiked price too, but we did not increase our prices at the consumer level. This has also choked our profits," Kausar said.

Desco is one of the six power distribution companies in Bangladesh, and they supply electricity to most parts of the Dhaka North City Corporation. The distributor has around 10.53 lakh consumers. 

Among them, around 91% users are from the domestic level, 7% are from commercial and industrial levels, and other consumers make up the remaining 2%. 

Desco's General Manager (Finance & Accounts) Md Mominul Islam told The Business Standard, "We sell electricity to 43% of the domestic users at a loss, who uses less than 400 units of electricity each month. 

"But, such users became our primary customers since the Covid-19 outbreak struck Bangladesh. This issue has compounded the decline in our profits."

According to the company's financial statement, a jump in the administrative expenses has also played a big role in lowering Desco's profits. 

The distributor's administrative and other expenses increased by 22% to Tk202.14 crore in the July-March period, compared to the Tk166.15 crore recorded in the same period last FY.  Employee expenses of the company have also increased by 23.32% during this time. 

In the third quarter, Desco's energy sales revenue increased by 16.15% to Tk910 crore during January to March period in the current FY, from Tk783.54 crore of the same period last fiscal year, the financial statement said.

At the same time, the power distribution company registered Tk4 crore in profits, while the earnings per share (EPS) stood at Tk0.12. During the same period in FY19-20, the company had recorded a loss of Tk27 crore and loss per share was Tk0.7.

Desco got listed with the stock exchanges in 2006.