Rise and Fall of Chilime: Experts says Chilime still best stock for long term

ShareSansar September 10: The scrips of Chilime Hydropower Company Limited (CHCL) were one of the most sought after blue-chip scrips in the secondary market. Back in the 2014 when NEPSE crossed 1050 level the share price of CHCL reached as high as Rs 2758. At present, the market is in bullish trend and was able to make a new high of 1200.92 levels whereas the share price of CHCL is declining! Chilime Hydropower Company Limited is considered a model development project in the country, something which every power developer aspired to emulate. Even the big projects like Upper Tmakoshi Hydroelectricity Project are trying to follow Chilime model. What went wrong with the Chilime? Despite the fact of the market being in an upward trend, why is the price of chilime scrips  falling? Here are some of the reasons behind it: Company Earnings The primary factor that causes stock prices to increase or decrease is the company’s earnings. Investors use the financial earnings of a company to determine its future value. A company’s stock price typically increases when it reports positive earnings and declines when it experiences a loss in net profit. CHCL published its fourth quarter report in the 16 July, 2015. According to the unaudited balance sheet of the company, its profit came down to Rs 86.54 crore last year from Rs 93.96 in the corresponding period of the previous fiscal year 2070/71, which is a decline of 7.9%. The reduction in net profit of CHCL seems to be an important factor to induce decline in the share price of CHCL. What is the situation of the Company’s Fundamentals? Mr. Sandeep Bikaram Rana, a prominent Fundamental Analyst says, “Chilime  scrip is still one of the best buy scrips for a long term investor.” To know about the performance of the company the general investor would only look at one factor and that’s the net profit / loss, but it’s very important as an investor to be able analyze the reasons for increment/ decrement in the net profit, added Mr. Rana. Comparing the quarterly report of the last fiscal year we can see that the CHCL’s sales income (the main income of the company which comes from selling electricity) surged by 5.28 percent to Rs 1.03 arba from Rs 98.50 crore. In previous years, one of the main factors that were contributing towards the net profit was the income from the net interest of cash reserve.  Its interest income declined to Rs 10.35 crore from Rs 22.32 crore in the last fiscal year. There are two important reasons for decline in net interest income.  CHCL has reserve fund of Rs 4.53 arba, out of which CHCL has made an investment of Rs 3.94 arba in its subsidiary projects in the last fiscal year. Secondly, significant decline in interest income is due to interest rate provided by bank that plunged during the fiscal year 2071/72. The company had to bear a loss of Rs 7.34 crore due the massive earthquake of April, 2015. Company Event In addition to earnings, events within a company can cause a stock price to increase or decrease. On July 17, 2014 Nepal Electricity Authority (NEA) had recalled Mr Kul Man Ghising, the architect of the exemplary ‘Chilime’ model and the man behind expanding Chilime’s business, by setting up four more hydropower projects with a combined capacity of around 270MW. Mr. Ghising was heading Chilime’s subsidiary projects, which included 11MW Rasuwagadi, 103MW Bhotekohsi III, 42MW Sanjen and 14MW Upper Sanjen. After Ghising was recalled NEA officials Sher Singh Bhat, Hitendra Dev Shakya and Lila Nath Bhattarai were appointed to the boards of Sanjen, Madhya Bhotekoshi and Rasuwagadhi hydropower projects respectively. Appointment of these many officials increased the administrative cost of Chilime Hydropower and its subsidiary projects. It is believed that it was due to political interference, Mr. Ghising was removed and 3 other NEA officials were appointed to the boards of Chilime’s subsidiary projects. Removing the leader who developed the project sent a negative message to the investor and all the stakeholders. Decline Dividends Companies declare dividends to share profits with investors. Looking at the table below, we can see a significant decline in dividends being provided by CHCL. This has hampered the company’s image and is also a factor responsible for decline in share price of CHCL.  

Chilime Hydropower Company Limited	Bonus Dividend %	Cash Dividend %	Total Dividend %
Fiscal Year 2067/68	40	30	70
Fiscal Year 2068/69	30	20	50
Fiscal Year 2069/70	30	10	40
Fiscal Year 2070/71	20	15	35

  As per Mr. Rana , “ The company is investing in its four subsidiary hydropower projects as a result it  has not been able to provided as much dividend as it provided earlier; since profit of any hydro project remains constant until other new project earning are added to balance sheet, but as soon as the other projects of CHCL concludes, the investor will be getting handsome dividend than earlier years.” The decline in the EPS is also nothing to worry about. CHCL had been providing good bonus shares in earlier years.  As the number of shares have increased due to issuance of bonus share in CHCL, it is normal for EPS to decline. The scrip of CHCL is still a good bargain for long term investor as they wait for the return from the four hydropower projects it is currently investing. A long term investor should grab this opportunity as there is ongoing “sale” on CHCL stock price and gear up for higher dividends in near future.  But for now short term sentiments is weak so there might be further fall in CHCL price but every dip can be a better opportunity for the value investors. Subash Kharel,Priyanka Jha, Prakash Ghimere , Jashma Sainju and Kabita Nayaju  contributed to this article.