Thinking to apply for Kalika Power Company’s IPO? Look at what the stats say

~Rishab Agrawal

Introduction and Synopsis

Kalika Power Company Limited (KPCL) was incorporated on 7th March, 2008 as Daraudi Kalika Hydro Private Limited and subsequently converted into public limited company on 15th October 2015 to facilitate public participation. As on mid-April 2017, paid up capital of KPCL stood at NPR 420 million, ~80% of which is held by Mr. Bikram Pandey and his family members. Major promoters of KPCL includes Mr. Bikram Pandey & Family (77%), Mr. Yuba Bahadur Chhetri (10%), Mr. Padam Gurung (10%) & Mr. Thakur Prasad Dhakal (3%).

KPCL has one operational hydropower project- Daraudi “A” Small Hydroelectric Project of 6MW, in Gorkha District of western Nepal. The project was commissioned in November 2016 at a total cost of NPR 1,386 million (NPR 231 million per MW), which was funded in debt equity ratio of 59:41.

The management plans to use the proceeds from the proposed IPO to settle the loans taken for project development (repayment of short term loans and contractor payables and partial downsizing of long term bank loans). The promoter: public shareholding after proposed IPO issue of NPR 180 million would be 70:30, assuming full subscription. As a part of the IPO process, the company issued 10% of its post IPO paid-up capital to the local inhabitants of project affected areas following which remaining 20% capital shall be offered to general public and staffs of KPCL.

Capital Plan

The company has posted its past and projected paid up capital plan and the situation of its reserves and surplus. Figures posted over last three years and figures projected to be posted in the next three years have been mentioned. They are as follows:

The company started with a humble paid up capital of Rs.100 Million which is currently standing at Rs.480 Million and is expected to grow to Rs.694.58 Million in the coming years. However, the reserves and surplus that are at loss currently, are expected to grow to Rs.21.37 Million in the coming years. A steep growth can be seen in the reserves and surplus in the coming years which is an ambitious move of the company, given the amount of losses incurred in the past.

Net Profit

We look at the net profit/loss posted by the company and its projected figures. This will give a brief idea about what the investors can expect in return from the company.

As we can see, the company is currently running at a loss of Rs.15.04 Million. However, this is expected to change in the coming years and profit of Rs.21.37 Million has been targeted. The amount of projected net profits is exactly equal to the amount of projected reserves and surplus, which means that amount earned as profit will be directly transferred to the reserves and surplus of the company. It doesn’t mean that the investors won’t get any return out of the net profits.

The company has also posted the amount of projected dividend in the coming years for its investors. The dividend plan of the company is as follows:

The company has planned to start its dividend payout from the coming year. Satisfactory amount of dividend can be expected from the company as per the projected figures in form of cash dividend and bonus shares.

EPS and Net Worth per Share

The Earnings and Net worth per share give the stakeholders an idea about the return in the form of value appreciation of price of shares. The past and projected figures have been plotted on a graph.

A bleak but consistent grown can be seen in the projected values of Earnings and Net worth per share. The EPS is currently standing at Rs.0.50 while the Net worth per share is Rs.96.87. These figures are expected to grow to Rs.11.51 and Rs.103.08 respectively in the coming years.

From the figures posted above, we can predict that trading price of shares of the company will open in the range of Rs.95.84 to Rs.287.52 per share.

Composition of Directors

The Board of Directors will consist of four directors representing promoter shareholders, two directors representing ordinary shareholders and one independent director making up a total of seven members.

Performance of previously Listed Hydropower Companies after listing

From the table above, it is clear that stocks of hydropower companies surge at the time of listing but fall after some time. This is mainly because investment in hydropower sector is treated as short term investment and investors absorb returns and exit from the investment as soon as possible. If this trend is followed, the result will be the same for Kalika Power and investors will be attracted to invest in the shares but only for short term gains.

Summary

Kalika Power Company has invited potential investors to apply for a stake in the company through means of IPO. The company is offering 1,200,000 units of shares to the general public and its employees at par value of Rs.100 per share. The issue will be open from 28^th Bhadra, 2075 to 1^st Ashoj, 2075. This date will be extended to 28^th Ashoj, 2075 in case the issue remains undersubscribed in the given time period. The interested applicants can apply for minimum 50 units and maximum 6,000 units. ICRA Nepal has assigned “[ICRANP] IPO Grade 4” to the proposed issue indicating below average fundamentals. Kathmandu Capital Market Limited and Global IME Capital Limited have been appointed as the issue managers.

Recommendation: Apply

Although the project is running at loss currently, the future prospects of the project seem bright. If the projected targets of the project are achieved, it will be a strong player in the market and provide satisfactory returns to its investors in terms of dividend and value appreciation. However, short term holding may seem more attractive to investors. It is recommended that investors apply for a minimum of 50 units locking in an amount of Rs.5000.