Karachi: Sindh Engro Coal Mining Company (SECMC) has initiated the third-phase expansion of its Thar Block-II coal mine, increasing its annual production capacity by 3.6 million tons to a total of 11.2 million tons. This development aims to benefit Lucky Electric Power Company Ltd. (LEPCL) by enhancing its profitability, while having no significant impact on Engro Powergen and HUBCO.

According to AKD Securities Limited, the additional coal will be supplied to LEPCL, elevating SECMC's customer base to 1,980 megawatts of power capacity. This includes Engro Powergen Thar with 660 megawatts, Thar Energy with 330 megawatts, and ThalNova Power Thar also contributing 330 megawatts. While SECMC's expansion is set to boost LEPCL's return on equity (ROE) to 29.5% from 27.2%, it is not expected to have a material impact on the ROE components of ENGROH and HUBCO, which hold stakes of 11.9% and 8.0%, respectively.

For LEPCL, the transition to local coal is projected to significantly reduce its generation costs from approximately PkR15.7 per kilowatt-hour to about PkR5.4 per kilowatt-hour. This shift is anticipated to elevate LEPCL into the top five on the Independent System and Market Operator's merit order list, up from its current position below the tenth spot. AKD Securities has already accounted for these changes in their base case analysis.

AKD Securities maintains a 'BUY' recommendation for LUCK, ENGROH, and HUBCO, with a sum-of-the-parts target price for December 2026 set at PkR731, PkR358, and PkR215 per share, respectively.