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Why has hydropower sector lost its charm in NEPSE? (Case Study of Arun Valley Hydropower)

- ShareSansar, April 4, 2017  on Company Analysis , Featured , Financial Analysis , Latest , Stock Market
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How undervalued is the stock AHPC?

Started with a capital of just under Rs 12 crore with a 3MW hydropower plant, Arun Valley Hydropower Development Company Limited (AHPC) now has a share capital of Rs 84.81 crore. With only a small 3MW hydropower plant, AHPC has been able to provide good returns to its investors since starting its commercial operations.

arunve

Company at a glance

  • Establishment Date: Falgun 28, 2054
  • Paid Up Capital: Rs 84,81,93,000
  • Project: 3MW Piluwakhola (Sankhuwasabha district)
  • Commercial Operation: Ashwin 1, 2060
  • Market Price: Rs 275 (as of April 3, 2017)
  • Income from Electricity Sales: Rs 6.61 crore (FY 2072/73)
  • Net Profit: Rs 6.44 crore (FY 2072/73)

Dividend History

Fiscal YearCashBonus
2060/618%
2061/6210%
2062/6310%
2063/6415%
2064/65
2065/6640%
2066/6737.13%40%
2067/6815%
2068/6915%
2069/7015%
2070/7110%
2071/7211%
2072/7310%

AHPC has been providing good returns to its shareholders since the year it started its commercial operations. In the FY 2072/73, it earned Rs 6.61 crore from electricity sales and was able to post a net profit of Rs 6.44 crore after all expenses and taxes. This was supported by the fact that the company has good investments in several companies and it has been able to reduce its overall expenses by 6.21% as compared to FY 2071/72.

Investments

As of second quarter of FY 2073/74, AHPC has diversified investments worth Rs 54.91 crore in several companies:

  1. Ridi Hydropower Development Company Limited
  2. Upper Piluwakhola Hydropower Company Limited
  3. Arun Kabeli Power Limited
  4. Rairang Hydropower Development Company Limited
  5. Himal Urja Bikas Company Limited
  6. Api Power Company Limited
  7. Janata Bank Nepal Limited
  8. National Hydropower Company Limited
  9. Chilime Hydropower Company Limited
  10. Api Hydro Mechanical Pvt. Limited
  11. Nepal Investment Bank Limited
  12. Hydroelectricity Investment and Development Company Limited
  13. Siddhakali Hydropower Company Limited

Further Prospects

  • Further Public Offering (FPO) of 31,57,883 units shares to raise capital for its upcoming projects
  • Study of storage-type hydropower projects

Upcoming Projects

  1. Kabeli B-1 (25 MW)

AHPC has 25% stake in its subsidiary company, Arun Kabeli Power Limited, that is developing a 25MW run-of-river hydropower project in Panchthar and Taplejung district. The commercial operation of the project is set to start from coming Dashain (September-October 2017).

After its recently floated IPO, Arun Kabeli has a paid up capital of Rs 1.50 arba with promoter – people of affected area (Taplejung and Panchthar) – public shareholding structure at 70% – 10% – 20%. After the hydropower plant starts its operation in 2074 B.S., the company will start generating income—adding to the income of Arun Valley Hydropower Company.

Arun Valley Hydropower was also rumored to go under merger with Arun Kabeli Power Limited. AHPC has also endorsed the agenda to merger with suitable hydropower company from its AGM this year.

  1. Kabeli B-1 Cascade (9.94 MW)

AHPC aims to raise money for this project from its upcoming FPO. The agenda to issue further shares to the public has already been approved by the AGM of FY 2072/73.

  1. Trishuli Galchhi (75 MW)

AHPC has Rs 10 crore equity investment in this 75MW hydropower project being developed under Siddhakali Hydropower Company Limiited.  The company has already signed Power Purchase Agreement (PPA) with Nepal Electricity Authority and is purchasing lands for building the project.


Going Forward: what can investors expect?

Arun Valley Hydropower Development Company has good safe investments in several companies. With a number of hydropower plants in pipeline, and one to soon start commercial operation, investors can expect good dividends in the long term. This time of year, when the market is inclined towards insurance companies with prices over Rs 1,500, AHPC can be bought in less than Rs 300.

As a company, AHPC also conducts its Annual General Meetings (AGMs) within the stipulated time frame. This shows a lot about the management. So, why are investors wasting their time and money in companies that do not conduct AGMs for several years? This is something to think about when investors build their portfolio.

Conclusion

In a country like Nepal where the entire economy is dependent on electricity generated through hydropower, it seems ironic that investors have lost their charm in hydropower sector. Although it seems logical that investors will not be able to get dividends as soon as the hydropower plant comes into operation, AHPC has been in operation for a long time and has been providing good returns. Despite this, its market value is one of the lowest in the industry.

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