Thinking about applying for the IPO of Panchakanya Mai Hydropower? Know more about the company

-Puskar Shrestha

Synopsis of the Issue

Panchakanya Mai Hydropower Limited is a hydropower development company operating in the Sandakpur rural municipality of Ilam District.  It operates a 12 MW Upper Mai Hydropower Project in Ilam district. The company is constructing a 6.1 MW Upper Mai “C” (cascade) project which is approaching completion.

The hydropower company is issuing 11 lakh unit shares as its Initial Public Offering. Out of the 11,00,000 unit shares, 44,000 units and 55,000 units shares have been segregated for employees and mutual fund respectively.

The issue will begin from Shrawan 01, 2075 and close on Shrawan 04, 2075. In case the issue is not fully subscribed in earlier closing day, then issue can be extended upto Shrawan 15, 2075. Applicants can apply for a minimum 50 units of shares, and 5,500 units of shares is the maximum units they can apply for.

From the issue, the company will collect Rs 11 crore. The company has planned to use the proceeds to pay off its loan received from Everest Bank and Nabil Bank. The company has already issued the same unit of shares for the locals of the project affected area.

ICRA Nepal has assigned Grade 4 rating to the upcoming IPO issue indicating below average fundamentals.

Directors of the company

The board of director holds 3 directors from the promoter shareholders.

• Prem Bahadur Shrestha, Chairman
  1. Holdings- 27,25,000 units
  2. Worked as Chairman for many industries and business promoted by Panchakanya Group for 50 years and worked for 8 years in the hydropower sector as well.
• Dhruba Kumar Shrestha, Vice Chairman
  1. Holdings- 6,25,000 units
  2. Worked as a vice chairman for many industries and business promoted by Panchakanya Group for 32 years and worked for 8 years in the hydropower sector.
• Santosh Kumar Pradhan, Executive Director
  1. Holdings- 2,50,000
  2. Worked in the field of electricity for more than 38 years (National Electricity Authority, Electricity department and many more)

Capital Structure after issuance

After the issuance of shares to the general public, the promoters will hold 80% of the total capital of the company worth Rs 88 crore. Similarly, the locals of the project affected area and the general public will hold equal share of 10% each which is equal to Rs 11 crore.

Capital Plan:

The hydropower company has planned to increase its capital in the following modality:

From the previous year’s financial statements and the projected financial statements, it can be clearly observed that after the paid-up capital reaches Rs 1.10 arba post IPO, there are no further plans for the increment of capital for the upcoming fiscal years.

Revenue from sale of electricity

It is quite obvious that the main source of income for the hydropower companies is the revenue from the sales of electricity to Nepal Electricity Authority. The earnings of the hydropower company from the sale of electricity can be presented as follow:

After the operation of Upper Mai ‘C’ project will begin, the revenue of the company will also increase in a very good rate. The projected financials of the company shows that the company will earn revenue in a stable pace after the tremendous boost.

Net Profit of the company:

The net profit of the company has been in an increasing trend and the company looks forward to keeping the trend in the similar fashion.

The net profit of the hydropower company is expected to rise phenomenally in the upcoming years. The hydropower company will be generating income from two hydropower projects which will boost its net profit over the years.

Earnings per Share

The Earning per share (EPS) of the company is expected to increase along with the time. The earning of the hydropower is likely to have a huge improvement in the upcoming years which will boost the EPS of extra ordinarily. The showcased trend of EPS will definitely lure the investors as the company shows positive signs for the future as well.

Dividend Payout

As per the projected financial statement of the company, the company has planned to provide cash dividends for FY 2076/77 and FY 2077/78. The company has plan to provide 7% cash dividend for the fiscal year 2076/77 worth Rs 7.70 crore and 10% cash dividend for the fiscal year 2077/78 worth Rs 11 crore and 12% cash dividend for the fiscal year 2078/79 worth Rs 13.20 crore.

PPA Status of the company

NEA and Panchakanya Mai have signed Power Purchase Agreement for their Upper Mai Hydropower Project. The agreement will be lasting for 30 years.

According to the PPA, the company will be selling 5,59,24,421 units to the NEA during a year. According to the PPA, for the first 2,41,95,277 units, NEA will pay Rs 3.90 per unit in the rainy season and Rs 5.52 in the dry season. For the remaining 3,17,29,144 units, NEA will pay Rs 4.80 per unit in the rainy season and Rs 8.40 per unit in the dry season.

For the Upper Mai ‘C’ project, NEA will pay Rs 4.80 per unit in the rainy season and Rs 8.40 per unit in the dry season.

Pay Back Period

For the two projects under ownership of Panchakanya Mai Hydropower, different pay-back periods have been evaluated. For the 12 MW Upper Mai Hydropower, the total investment of Rs 2.24 arba will be returned in 8.5 years. Similarly, for the 6.1 MW Upper Mai ‘C’ project, the total investment of Rs 1.14 arba will be returned in 7 years as per the discounted rate. The per MW cost for the Upper Mai ‘C’ is Rs 18,78,19,672 while the per MW cost for the Upper Mai project is Rs 18,68,45,993.

Performance of previously Listed Hydropower Companies after listing

The shares of hydropower companies are treated as a short term investment by majority of the investors. The stocks of the hydropower companies show tendency to rise sharply when they are listed, and then start decreasing after achieving a certain height. The shares of the above listed companies are currently trading below the closing price of the day when they were listed. If the trend of the shares of the hydropower companies in NEPSE are considered, Panchakanya Mai is also not going to behave any differently. Hence, if the investors are willing to achieve quick gain from the stock, selling them immediately after listing will not be a bad idea.

Recommendation: Apply

The IPO of Panchakanya Mai Hydropower Limited is a great opportunity to apply as the future prospects seem to be promising. The forecasted financials show satisfactory performance. The projects under the management of Panchakanya Mai also seem to provide good return in the upcoming days. The investors are advised to apply for the minimum applicable units i.e. 50 units.