Ridi Hydropower Development Company Limited IPO Analysis

Ridi Hydropower Development Company Limited IPO Analysis

Issue Manager: Civil Capital Market Ltd.
                          Elite Capital Limited


Introduction of Ridi Hydropower Development Company Limited

Ridi Hydropower Development Company Limited  (RHD) was established under Company Act, 2063 in 2000/10/16 as private limited company. Later in 2008/08/04, however, the company converted to public limited company with intention to increase and facilitate the participation of general public in the hydro development projects. Currently, there are 286 promoters in the company.

RHDL is a part of group companies that include Arun Valley Hydropower Development Company (AHPC) and Rairang Hydropower Development Company, both of them with operational hydro power projects of 3 MW and 0.5.MW respectively. RHDL have four projects under its belt, among them, three are already operational while one is under construction.

The company is operating 2,400 kW Ridi Khola Hydropower Project in Gulmi District of Western Nepal since October 2009.Likewise,  its 100% subsidiary Rairang Hydropower (acquired in April 2012) is operating a 500 kW Rairang Khola Hydropower Project in Dhading District of Central Nepal since April 2012. Similarly, the company has been operating 3000 kW Piluwa Khola project in Sankhuwasava District in Koshi Zone since 2003.

The company now intends to develop 9900 kW Iwa Khola Project whose required Commercial Operation Date (COD) is July 2018 as per the PPA, at an estimated cost of NPR 1,600 million under Rairang Hydropower Development Company. The project is proposed to be funded in debt: equity ratio of 75:25. The current IPO will fund a portion of equity requirement of the project, while the management plans to raise the balance equity from the accruals of Rairang Hydropower Limited and the IPO of Rairang Hydropower Limited or IPO of the Special Purpose Vehicle (SPV) formed for the Iwa Project itself (if any).

The company has entered into a Power Purchase Agreement (PPA) with the Nepal Electricity Authority (NEA) for its entire generation capacity and applied for power generation license. With a firm PPA in place for the proposed project, the tariff and off-take risks are reduced considerably. As per the PPA, the tariff rates for wet season are NPR 4.8 and for dry season is NPR 8.4 with 3% escalation for 5 years.

RHDL has 16% stake of Arun Valley Hydropower Limited and its other major promoters include Mr. Guru Prasad Neupane (6.92%), Mr. Deda Raj Khadka (5.77%), Bachharaj Tater & Family (9.8%) and Mr Shivratan Sharda & Family (9.29%).

The company has been registered with the authorized capital of NPR 500 million, and currently it holds issued capital of NPR 300 million and paid-up capital of NPR 183 million. Apparently of the intended 49% public holding , the company had issue 10% of its issued capital to the local resident of project affected area, to raise capital worth NPR 30 million. Now, the company has floated remaining 39% of issued capital worth NPR 117 million to the general, to come par to the issued capital of the company. The company’s registered office is situated at Kathmandu ward no-11, Trade Tower Nepal, Thapathali, Kathmandu.


Major shareholders of Ridi Hydropower Development Company Limited as per the Prospectus

Board of Directors of Ridi Hydropower Development Company Limited

Mr. Bichchharaj Tated, Chairman
Qualification: Bachelors of Engineering (B.E.)
Work Experience: More than 15 years of working experience in the companies such as Arun Valley Hydropower Co. Ltd and in Cable, Chemicals and building equipment business.

Mr Guru Prasad Neupane, Director
Qualification: Masters of Arts (M.A. in Economics)
Work Experience: More than 30 years of work experience in Nepal Rastra Bank. And 12 years of experience in Arun Hydropower Company Limited.

Mr. Shiva Ratna Sharda, Director
Qualification: Bachelors of Commerce (B.Com)
Work Experience: Involvement in Kumari Bank Ltd., Cement Business, Cable and Ridi Hydropower Company Ltd.

Mr. Deda Raj Khadka, Director
Qualification: Bachelors of Education(B. Ed)
Work Experience: More than 10 years of experience in Hydro sector.

Mr. Ramesh Prasad Neupane,  Director
Qualification: Bachelors of Commerce (B.Com)
Work Experience: More than 12 years of experience in the field Hydro sector.

Mr. Kubermani Nepal,  Director
Qualification: Masters of Science (M.Sc)
Work Experience: More than 12 years of experience in the field Hydro sector.

        

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

Key personnel in Ridi Hydropower Development Company Limited

Mr Guru Prasad Neupane, Chief Executive Officer
Qualification: Masters of Arts (M.A. in Economics)
Work Experience: More than 30 years of work experience in Nepal Rastra Bank. And 12 years of experience in Arun Hydropower Company Limited.

Mr. Kubermani Nepal, Project Manager
Qualification: Masters of Science (M.Sc)
Work Experience: More than 12 years of experience in the field of Hydro sector.

Mr. Aalok K.C., Company Secretary



Capital Structure

FINANCIAL HIGHLIGHTS OF THE COMPANY

                                Figure in Rs “000”

Looking at the company’s capital structure, of the NPR 300 million issued capital, the company currently holds 50% of the issued capital which is invested by promoters only. According to the regulation, the company has to make provision of 10% of the issued capital to the people residing in the area affected by the industry which the company has successfully completed last year. Now, the company plans to raise capital worth Rs 117 million from this second round of offering i.e. remaining 39% of the issued capital

Observing reserve and surplus of the company, there is downward fluctuation coming to the FY 2068/69 from FY 2067/68. However, in the following years it has maintained a hefty growth figure in the reserve and surplus.

Currently the company is operating three hydro projects from which it has been generating revenues. Looking at its income, it is generating steady revenue from the distribution of the electricity. Though, there was slight hiccup in the FY 2068/69, coming to FY 2069/70 we can see it has maintain a healthy growth. And observing its first quarter figure also, it indicates a healthy figure.

The expenses of the company are more or less in similar range since three out of its four projects are on operational stage. 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 150.24%, propelling its profit to Rs 21.2 million. Apart from its current financial position, the prospect of additional revenue generation from its 9900 kW Iwa Khola Project in near future will surely uplift the financial position of the company.

If we look at the Net Worth of the company, it is more or less near the par till last fiscal year. However, coming to the first quarter of this fiscal year, it has tallied to slightly higher ground. With the company’s near 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 steady incline.  However, looking at the annualized figure of the first quarter, it suggests a slight degraded performance of the company.

In conclusion, the company is operating three hydropower projects with an aggregate capacity of 5.9 MW and apparently another project of 9.9 MW is under way, whose PPA has already been signed with NEA. Looking into these things, the company has already been in selling process of electricity from its running projects. So, the investors can expect dividend from this company unlike some other companies who are still in construction phase. In addition to it, the company has a track record of distributing dividend at an average rate of 8% for the last three years.

Further the 9.9 MW project, whose Commercial Operation Date is on July 2018 as per PPA, attributes better growth prospect of the company.   

Similarly, the immense opportunity of growth for hydel companies in Nepal along with limited presence of hydro companies in Nepse, will surely encourage investors. So, the investors with the motive of short-term position can make benefit as there is no provision for minimum three-year holding period unlike that of first round of the IPO issued by company for the projected affected district.

Apart from it, with the prospect of a long-term position, too, it has high potentiality of becoming more beneficial as the hydro power companies tend to give stable and handsome returns in the long run to their investors.


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