Hydropower, being the sector with second highest market capitalization in NEPSE after Banks and Financial institutions (BFIs), hasn’t remained untouched with the bearish nature of market. The plight of this intensifies when we consider the fact that they have a longer payback period and on top of that most of them are relatively new.
Given the nature of industry, hydropower sector has to operate in loss until the construction is completed and operation starts. Similarly, they require a huge sum of initial investment and their debt composition downsizes the amount of equity put in. So basically, investing in hydropower requires an appetite for risk and the returns can be equally rewarding too, but patience is of utmost importance.
Hydropower industry, particularly in Nepal, is still in crawling phase. Except a few, most are still under construction and some are yet to generate any significant revenue. So this fiscal year when the market started to turn bearish, almost all of the hydropower companies’ share price has fallen to a 52 weeks low. In case of the newly established ones, they have come to an all-time-low price.
The prevalent directives of Securities Board of Nepal (SEBON) states that the Initial Public Offering (IPO) be floated at a par value of Rs. 100. So once they get listed under Nepal Stock Exchange (NEPSE), their shares start to trade in thrice their net worth i.e. approx. Rs. 200-300 range. After that the price is dependent upon the mechanism of demand and supply. However as you can see in the table below, all of the prices have fallen below Rs. 300 after adjusting the right and bonus shares distributed this year. So for the investors having stake on these companies, there return till now is in Red.
The above table shows the closing price as on March 22, 2018, the 52 weeks high and low prices and the adjusted price after adjusting all the right and bonus shares given in the fiscal year 2073/74. The 52 weeks high and low price gives the highest and lowest price for the given period in time. As you can see in the table, 2 companies BPCL and UMHL are already in their 52 weeks low. Similarly, the other 14 companies’ closing price is only slightly above their lowest price.
Comparing the vertical column of closing price, CHCL stands atop with a price of Rs. 766, but comparing with itself that price is below its 52 weeks low. The higher level of CHCL’s can be attributed to its longer time of establishment from 1995. They are past their development phase and now are in income generating phase. Similarly, BPCL has the second highest price in the list but the shareholders of this company are at loss. Only few months back, BPCL had issued Further Public Offering (FPO) at a price of Rs. 501, which was hugely undersubscribed. For those who did buy, are currently at a loss of Rs. 37 per share.
Despite the down turns in market, hydropower is a productive sector. Once the development is completed, dividends and bonuses are bound to follow. So for market-timers and short term traders scrips of hydropower won’t be very profitable for now, but for those seeking long term investment this might be a prime time to make some investments. However, this solely can’t be the base for deciding to invest or not. You’ll also have to resort to financial analysis, future plans and forecasts and importantly your hunch.
However, if you’re interested to invest in hydropower one more company is adding from Chaitra 11, 2074. Radhi Hydropower Company will be the 18
th listed hydropower in the bourse. One of the prime reasons for widespread distress prevalent among the investors is because of the fact that such huge sector still doesn’t have a regulator. On many occasions, the high stake parties have taken benefit of this, leaving the general shareholders in the blind side. Even when the market was bullish, the prices of hydropower companies were lower than other sectors. As of now SEBON is taking this case more seriously. It has been stricter before passing the right shares of many hydropower companies. You can learn further on this topic
here.
So, if an authoritative regulatory body is established to maintain accountability and credibility of this sector, investors might generate a favorable attitude to hydropower industry. This might also give them the courage and incentive to build courage to develop an appetite for risk.
