1. Introduction:
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Installed Capacity= 22.10 MW
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Established= 1996 A.D
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Commercial Operation= August 25, 2003
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Site of Project= Rasuwa district
2. Ownership
Pattern:
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Nepal electricity authority= 51%
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General Public= 14%
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Local Residents = 10%
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Employees= 25%
3. Equity
Fundamentals (Based on unaudited Q1 2068/69):
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Last traded price(2011.12.08)= Rs. 819
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52 Week high price= Rs.1085
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52 Week low price=Rs. 686
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Paid up Capital= Rs. 96 Crore
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M-Cap(2011.12.08)= Rs. 786.24 Cr.
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EPS (LTM)= Rs. 93.41
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P/E Ratio= 8.77
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Net worth per Share= Rs.513.77
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Per share total Assest Value= 523.95
4. EPS
and Dividend history:
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Year EPS(Rs.) Dividend(%)
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2060/61 55.63 10%
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2061/62 78.30 20%
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2062/63 69.59 35%
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2063/64 91.49 30%
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2064/65 93.12 35%
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2065/66 100.79 45%
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2066/67 106.56 60%
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2067/68 87.82 30% (proposed)
5. Company
Strength:
a. Falls
under defensive sector and so not influenced by economic cycles.
b. Adequate
reserve of Rs. 338.32 Cr. which is 3.52 times the paid up capital.
c. Effective
managment and adequate dividend payment history.
d. Healthy
pricing, Currently trading at around 8.7 times its present annual earning and
1.59 times its book value.
e. The
Company has signed the loan agreement with EPF for commencing its four pipeline
projects aggregating 259.10 MW. The details of these four pipeline projects is
presented hereunder;
Project Capacity % share of Chilime Estimated complition date
(Sanjen +
Sanjen Upper) 57.10 MW 53% Sept-2015
Middle Bhotekoshi 100 MW 50% End Of 2016
Rasuwagadi 102
MW 45% End of
2016
Total estimated cost of these four projects (259.10 MW) is 32 Billion
(Nrs)
Total Weighted Average shareholding of Chilime in these four projects is 48.69%.
The
successful complition of these four projects within the estipulated time can be
a good value addition to the company. 6. Key Findings: a. The core earning comes from the sale of electricity to NEA. This income remains relatively constant over years ( despite some nominal growth in every few years if provided by PPA). However, the interest income is growing each year because of increase in retained profit. This results in relatively constant EPS and net profit in coming years i.e. good growth of profit cannot be expected. b. The total market capitalization of the company appears overvalued quoting 35.58 Cr. per MW installed capacity. However, the prevailing construction cost ranges from 12-20 Cr. per MW. c. The estimated total cost to be incurred in the complition of above four pipe line projects nears around Rs. 32 Billion (@ Rs 12.35 per MW). EPF has agreed to grant a loan of Rs. 16.05 Billion. Since the Weighted average shareholding of Chilime comes around 48.69% in these four projects, it is more likely that Chilime needs to manage that percentage [48.69% of (32B-16.05B)=7.77B] of funds internally. With net investible fund (i.e. liquid assets ) appearing around Rs 205.69 Cr. ( Up to end of FY 67/68) and considering steady annual profit of around 85 Cr. in the coming years, accumulated for next four years without distributing dividend, the fund deficit still comes around Rs 2.33 Billion that can be managed by either of two ways: - Further issue of shares at primium, or - Right issues to existing share holders. Conclusion: - In coming years, dividend distributions may not be more likely. - Further float of shares either by new issue or through right issue is most probable. The good volume of future issues can be anticipated. d. The governing act/law to Hydro Power companies and their operations is the ¿ Electricity Act , 2049¿. Basic knowledge of this act before investing in Hydro Power companies could proved to be more arithmatic and prudential. We believe that the investors should at least be aware of the following facts: i. U/S 5(2), the terms of license shall be of 50 years in maximum. ii. U/S 12(3), exemption from income tax for 15 years of commercial operation. iii. U/S 11, Royalty to NG upto 15 years of commercial operation shall be Rs 100 per year per KW plus 2% of average tariff per unit. After 15 years, Rs 1000 per year per KW plus 10% of average tariff per unit. Impact of this Act on Chilime: ¿ After 50 years, the company need to be handed over to NG without any considerations ( i.e free of cost). ¿ Company shall enjoy tax holiday upto Bhadra 8,2075 B.S, From when company shall be leived an Income tax lessened by 10 % of prevailing corporate tax. ¿ The royalty charge shall be 10 times higher from then date stated above. Even average tariff rate shall be magnified by 500% then. ¿ The aggregate effect of this tax imposition shall have a larger impact on profit and EPS that could fall substantially.
e. The more intersting fact, the investors need to be aware of is the fact that the new ¿Electricity Act, 2065¿ has been proposed and fully drafted which is at present being studied at the Legislative committee for finalising it. The new act shall replace the old Electricity Act , 2049. The key contents of this proposed Electricity Act , 2065 to our concerns are: ¿ U/S 10(4 ka), The term license for generation of Hydroelectricity to meet internal demand shall be of 35 years and to meet external demands (Exports) shall be of 30 years. ¿ U/S 15(1), After expiry of term of license, the licensee shall hand over all infrastructure relating to generation, transmission and distribution to NG at free of cost. ¿ U/S 21(1) and Schedule, Royalty shall be charged to licensee generating more than 1 MW electricity. For companies generating 10 MW to 100 MW, used for internal consumption, Royalty upto 15 years of commercial production shall be Rs 150 per year per KW plus 1.8% of average tariff per unit. After 15 years, Royalty shall be Rs 1500 per year per KW plus 10% of average tariff per unit. Other general informations on demand of forum participants: 1. Even the new shareholders (from FPO) are eligible to obtain the latter declared dividend and bonus share. These type of benifits(bonus, right or dividend) are made available to each and every equity shareholders appearing in shareholder register at the date of book closure for AGM approving the proposed offerings. 2. Estimated impact on leverage due to new upcoming projects: Estimated total cost of the project = Rs. 32 Billion. Loan by EPF = Rs. 16.05B Remaining fund to be collected by issue of shares = Rs. 15.95B Weighted average shareholding of Chilime in these four projects = [(0.53*57.10 + 100*0.5 + 102*0.45)/259.10] =48.69% Funds required to be collected by Chilime = Rs.15.95B*48.69% =Rs. 7.77B. Liquid assets available with the company in F/Y end 2066/67 =(Net current assets ¿ Inventories ¿ Salable Investments) = Rs. 2,05,69,78,780. Net frofit in F/Y 2067/68 = Rs.84.50 Cr. NOTE: All these calculations are based on assumption(as claimed by Chilime in different news sources) that chilime will retain the above stated portion of shareholding in those different upcoming projects and rest of required fund excluding loan from EPF would be accomapined by issue of new shares. With all these available informations before us, it can be very easily analyzed that to successfully complete these coming peojects within the estimated time, Chilime should retain all its profit for next four to five years i.e. no dividends in coming few years. Cumilative profit for next four years = Rs.338 Cr. Tentative fund deficit = (7.77 -2.056978 -3.38) = Rs.2.333 Billion. Conclusion: Hence, it can be assumed that in coming years Chilime either issues right shares or new shares through further IPOs or by combination of both to cover this fund deficit.
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