Cost of fund of investors to dictate the price of HIDCL after listing; Price likely to hover around 300

HIDCL’s IPO was the largest IPO offering in the history of Nepal. It also saw the highest collection ever. The company had floated an IPO worth Rs.2 arba (2 crore unit shares) that was oversubscribed by 21.58 times. People are naturally curious about what price the stock will fetch once it is listed in the only secondary market of Nepal.

Considering the bullish mood the market is currently in, its price is likely to begin on a high note. Having said that, the supply side of the stock is also very strong because of the large volume and diverse distribution of its shares. This will prevent the stock price from reaching too high.

The seven banks that applied for 50 lakh unit shares each got a large chunk (>5%) of the total public shares.  Although the company’s financials indicate a price well below Rs.150, another important factor to consider is the investors’ costs.

HIDCL has been classified as a Non-Banking Financial Institution but the general public seems to see it as a Hydroelectricity company.

The average Price Earning ratio of the Hydroelectricity sector currently stands at 33.16 times. Given that the Earning Per Share of HIDCL was Rs.4.24 in FY 2071/72 and is predicted to be Rs.3.15 this fiscal year, the company’s share price on the basis of PE ratio comes out to be Rs.104.61.

But it would be more accurate to compare it with the banking sector. The average PE ratio of the banking sector is currently 27.63 times. Given the EPS of HIDCL, the company’s calculated price comes out to be Rs. 87.14. However, in reality the market price of the company in the secondary market is likely to remain around Rs 300 in the first few months after listing. The opening trading range of the scrip will be span from Rs.106 to Rs.316.

Investors’ expectation on returns and growth in earnings & profit in coming years will dictate the price of the share on the long run.