All you must know about Madhya Bhotekoshi before applying for its IPO; look at what the indicators say

~Rishab Agrawal

Synopsis of the Issue

Madhya Bhotekoshi Jalavidhyut Company Limited (MBJCL) is a subsidiary company of Chilime, registered as public company in July 2010. MBJCL has planned to develop Middle Bhotekoshi Hydroelectric Project (MBKHEP) with an installed capacity of 102 MW in Sindhupalchowk district of Central Development Region.

Madhya Bhotekoshi Jalavidhyut Company owns 102 MW Madhya Bhotekoshi Hydropower Project in Bhotekoshi River, Sindhupalchowk. The project is scheduled to start commercial operation in June 2019. The project will produce a total Annual Salable Energy of 542.2 GWh out of which 83.7 GWh will be produced during dry seasons and 458.5 GWh during wet seasons. Per megawatt cost of the project is estimated to be Rs.160,827,000 (Rs.16.08 Crore) and the normal payback period is 7.54 years while the discounted payback period is 14.28 years. The lock-in period of the shares is 3 years.

Madhya Bhotekoshi Hydropower Company will be issuing 1.17 Crore units of IPO in the first phase from 28^th Kartik, 2075. The first phase of the issue will be only for the members registered with Employees Provident Fund (EPF). The issue will last till 14^th Mangsir, 2075. Members’ registered under EPF can apply for a minimum of 50 units and maximum of 500 units.

In the second phase of the issue, employees of the Promoter shareholding companies, employees of the lending institute and employees of EPF can apply for a stake in the hydropower project. The second phase of the issue will start from 19^th Mangsir, 2075 and last till 26^th Mangsir, 2075. 27 Lakh units of IPO will be available in the second phase of the issue. Employees of the promoter Shareholding Company and lending institute can apply for minimum 50 units and maximum 500 units while employees of EPF can apply for minimum of 50 units and maximum 1200 units.

Care Rating Nepal (CRNL) has assigned ‘CARE-NP IPO Grade 4+ [IPO Grade Four Plus]’ to the proposed IPO. The applicants can apply for the issue using C-ASBA service.

Global IME Capital has been appointed as the issue manager while NIBL Ace Capital, Prabhu Capital, Laxmi Capital, Sanima Capital, Civil Capital and CBIL Capital have be appointed as other co-issue managers.

Shareholding Structure

Chilime Hydropower Company and Nepal Electricity Authority are the major promoter shareholders of the company. After the completion of the issue, the promoter/public shareholding will be in the ratio of 51:49.

Capital Plan

The project has promising plans for expansion and the capital plan of the company is directly linked with the expansion of the project. The company has posted the current and planned growth in the capital and reserves of the company.

The capital in the previous year stands at Rs.3.06 Arba. The company plans to increase the capital to Rs.6 Arba, after which it will remain constant. As per the planned capital growth, dividend in the form of bonus shares cannot be expected from the company.

The reserves of the company, which have been nil until year end 74/75, will grow to Rs.2.77 Arba in a period of four years. The company plans to begin the creation of reserves after the issuance of IPO. The absence of reserve adds to the risk of the company. However, after adequate creation of reserves, the future of the company will be protected against unforeseen circumstances.

Net Profit

The company has posted the reported profits of the past few years and expected growth in the coming years. They are as follows:

The company has posted a loss until the end of previous year. The losses of the company have gradually grown from Rs.7.13 Crore to Rs.11.15 Crore in a period of four years. However, it is expected that the company will earn a profit of Rs.1.02 Crore till the end of FY 75/76. It also expects a steep growth in the profit in coming years. The expected profit of the company grows from Rs.1.02 Crore to Rs.1.28 Arba in a period of four years. Also, the company has planned to transfer all profits to reserves for the year 75/76 and 76/77.

Other Indicators

Past performance and planned growth in the EPS and Net worth per share has also been posted by the company. These indicators strongly reflect the future prospects of the company. Using these indicators, the investors will have an idea about what to expect from the company in terms of value appreciation and investment growth.

The net worth per share of the company is expected to be constant at Rs.100 till FY 75/76 after which it will gradually grow from Rs.114 to Rs.146 in a period of three years. Looking at the EPS, the company had posted negative EPS for the past three years. It is expected that the EPS will stand at Rs.0.17 by the end of 75/76. After 75/76, the company expects a steep growth in the EPS to Rs.14.09 which will gradually grow to Rs.21.42 by the end of FY 78/79.

SWOT Analysis

Strengths:

1. The project is backed by strong promoter group having management expertise in operating hydropower projects.
2. The Power Purchase Agreement (PPA) includes sufficient period coverage and moderate counter party risk.
3. Civil, Hydro mechanical and Electro mechanical contracts include a clause regarding fixed price.

Weakness:

1. Exposure to fluctuation in foreign currency exchange rates adds to the risk of increasing cost of the project.
2. Dependence on flow of river for power generation leads to fluctuation in output during different seasons.
3. No major development towards power evacuation.

Opportunity:

1. The direct involvement of Nepal Electricity Authority will provide the project with new opportunities.
2. Shortage of power in the country and government support in the power sector could direct the project towards long term growth.

Threat:

1. In case there is any kind of delay in the project due to any cause, the cost of the project is estimated to rise heavily.

Composition of Directors

After the issuance of the IPO, the Board of Directors will consist a total of eleven members. The composition of the same is as follows:

Summary

Looking at the various indicators mentioned above, the company may not seem attractive currently but strong growth is expected once the project starts commercial operation in June 2019. After the commencement of commercial operation, the project is expected to give heavy returns to the investors in the form of value appreciation and investment growth. This project doesn’t ensure short term gains but has good prospects for long term returns, keeping in view the current market trend and the overall performance of the hydropower industry.

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