Barun Hydropower Company Limited IPO Analysis

Issue Manager: Civil Capital Market Ltd.

Introduction of Barun Hydropower Company Limited

Barun Hydropower Development Company Limited  (RHD) was established under Company Act, 2063 in 2060/10/06 as private limited company. Later in 2066/03/31, however, the company converted to public limited company with intention to increase and facilitate the participation of general public in the hydro development projects.

Barun Hydropower is operating 4.5 MW hydropower project in Hewakhola, which flows in between Jaljala and Shiddha Pokhari VDCs. The project has been selling electricity for the last four years to Nepal Electricity Authority (NEA).

The company is issuing the IPO as per decision of its Board of Directors to the project affected locals from 30 percent of its issued capital so as to expand its business.

The Securities Board of Nepal (SEBON) had very recently approved the IPO though the company had applied for the same back on May 17 last year.

The company has been registered with authorized capital of NPR 350 million and currently it holds issued capital of NPR 243 million and paid up capital of NPR 170.10 million.

Apparently of the intended 30% public holding, the company is issuing 10 percent of its issued capital to the local resident of project affected area, to raise capital worth NPR 24.3 million. The remaining 20 percent of issued capital worth NPR 48.6 million will be issued to the general public in future date, to come par to the issued capital of the company. The company’s registered office is Barun Hydropower Company Limited situated in Kathmandu ward no-32, Anamnagar, Kathmandu.

Major shareholders of Barun Hydropower Company Limited as per the Offer letter

Board of Directors of Barun Hydropower Company Limited

Mr. Shailendra Guragai, Chairman

Qualification: Masters of Engineering (M.E.) and Post Graduate in Management

Work Experience:  He is the director of Janata Bank Limited and Nyadi group. He is also the Chairperperson of School of Environment Management and Sustainable Development Pvt. Ltd.

Mr. Arjun Prasad Gautam, Director

Qualification: +2

Work Experience: Managing Director of Upper Hewakhola Hydropower Co. Pvt. Ltd. and promoter of People’s Co. Pvt. Ltd.

Dr. Bhogendra Kumar Guragai, Director

Qualification: Masters of Science (M.Sc.)

Work Experience: He is director of Sunrise Bank Limited and Nyadi group, and Chairperson of Riverflow Hydropower Co. Pvt. Limited.

Mr. Dedraj Khadka, Director

Qualification: Graduate

Work Experience: He was engaged with Arun Hydropower Development Co. Ltd as director for 12 years. He is also the promoter of Ridi Hydropower Development Co. Ltd.

Mr. Bashudev Giri,  Director

Qualification: Graduate

Work Experience: He is the Chairperson of the consultative committee of Federation of Nepal Cottage and Small Industries. He has extensive experience as a BOD of various organizations such as Nepal Credit and Commerce Bank Limited, Himal Cement, Nepal Oil Corporation.

Board of Directors (BOD) shareholding in the company as per Offer Letter.

Capital Structure

FINANCIAL HIGHLIGHTS OF THE COMPANY

                                                                                                                                Figure in Rs “000”

Looking at the company’s capital structure, of the NPR 243 million issued capital, the company currently holds 70 percent of the issued capital which is invested by promoters only. According to the regulation, the company has to make provision of 10 percent of the issued capital to the people residing in the area affected by the industry, which the company in process of issuing. Further, the company plans to raise addition capital worth Rs 48.6 million, remaining 20 percent of the issued capital, from the second round of offering latter.

Observing reserve and surplus of the company, the figure had been in negative figure till last fiscal year.  It is only from this second quarter the figure has come to sustain in positive side.

Currently the company is operating only one hydro project of 4.5MW from which has come into operation. Looking at its income, it started generating steady revenue from the distribution of the electricity only for FY 2068/69. Before it, there was no income generation in the FY 2066/67 and FY 2067/68 but now, we can see it has maintained a healthy growth.

The expenses of the company are more or less in similar range as they are running only one project for now. So, there is bound to be less expenditure in hydro sector compared to its initial stages as time progress.

 With the increase in its income level and more or less static expenses, the net profit of the company in the last FY2069/70 has increased by 118.99 percent propelling its profit to positive figure of Rs 5.25 million. Similarly, coming to this second quarter, the profit has surged to massive Rs 22.64 million

If we look at the Net Worth of the company, it was less than par till last fiscal year. However, coming to the second quarter of this fiscal year, it has tallied to par. With the company’s near to static expenses and higher income generation and its growing reserve base, the value of company has increased a bit.

Similarly, looking at the figure of EPS, ROA and ROE, the company has made a tremendous improvement compared to past.  

In conclusion, the company is operating one hydropower project with capacity of 4.5 MW which has already been in selling process of electricity. So, the investors can expect dividend from this company unlike some other companies who are still in construction phase.

Similarly, the immense opportunity of growth prospect for hydel companies in Nepal along with limited presence of hydro companies in Nepse, will surely encourage investors.

However, the investors with the motive of short term position cannot make benefit from this IPO as there is provision for minimum 3 years holding period; only after this period the investors can liquidate their shares in the secondary market. But, with the prospect of long term position, it is way more beneficial as the hydro power company’s tend to give stable and handsome return in the long run to their investors.

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