Sanigad Hydro Limited has listed its shares on the Nepal Stock Exchange after completing its initial public offering allotment, with secondary market trading set to begin soon.
Sanigad Hydro Limited has finished allotting its IPO shares to the general public and is now listed on NEPSE. Very soon, the trading for these shares will start in the secondary market. The company got the approval to issue 30 percent of its total issued capital of Rs 2 arba 85 crore, which is 85 lakh 50 thousand kitta shares. Many investors are wondering how this company is for long term hold and what its financial future looks like.
Company Background and Project Details
Let us first talk about the company history. It was registered as a private limited company on Poush 5, 2064 and later turned into a public limited company in the year 2078. The company is promoted by some very famous entrepreneurs from the private sector of Nepal.
Sanigad Hydro has built the 38.46 megawatt Upper Kalanga Gad Hydroelectric Project in Bungal Municipality of Bajhang district. The project has started commercial electricity generation from Falgun 6, 2079. Actually, this project was supposed to finish by Ashoj 13, 2079. But due to reasons like border blockade, Covid pandemic, and difficult geography, the construction got delayed by five months.
Initially, the estimated cost of this project was Rs 6 arba 32 crore. However, by the time it completed and started commercial production, the total cost reached Rs 8 arba 68 crore 70 lakh. This means the per megawatt cost of the project is Rs 22 crore 58 lakh, which is quite average when we compare it with other similar projects. The simple payback period for this investment is 8.25 years and the discounted payback period is 14.69 years. Also, the electricity license of the project has 25 years and 3 months remaining.
Why Did the Cost and Time Increase?
According to the company, they faced several issues during construction. They had to spend a lot of time repairing empty spaces inside the ground while digging the tunnel. Also, small and medium earthquakes in the Sudurpaschim region blocked roads and access paths, which caused direct and indirect losses. Other reasons for the delay include changes in the initial design, Covid-19 lockdowns, unseasonal floods, and changes in transmission line design.
Because of this delay, the company faced its biggest financial blow in the form of interest during the construction period. Initially, the company estimated that interest would only cost Rs 56 crore 85 lakh. But because of the project delay and rising bank interest rates, this cost went up by 224 percent to reach Rs 1 arba 84 crore 52 lakh. This heavily increased the total project cost.
The debt-to-equity ratio of the company is 75:25, which means the project is heavily funded by bank loans. In financial terms, this is called being highly leveraged. This kind of structure can increase returns for shareholders when there is good profit, but the risk also goes up highly if the income drops. Many hydropower projects in Nepal have faced physical damage due to floods recently, but Sanigad has not faced any physical damage from natural disasters since it started power generation in 2079. Even then, natural disasters are unpredictable. To protect itself, the company has done heavy insurance with United Ajod Insurance Company Limited. They have Rs 6 arba 62 crore 85 lakh worth of Loss of Profit insurance and Rs 1 arba 28 crore 50 lakh 41 thousand worth of asset insurance.
Use of IPO Money and Debt Status
The company raised Rs 85 crore 50 lakh from the IPO. This money will be used to pay back the loans taken from banks. Specifically, Rs 18 crore 5 lakh will go to pay bank loans and Rs 67 crore 45 lakh will go to clear the term loan. The company had taken a total loan of Rs 7 arba 60 lakh from seven different banks. Till the end of Poush 2082, the company has paid back only Rs 79 crore 10 lakh. This means they still have a massive debt of Rs 6 arba 21 crore 53 lakh on their head.
The company plans to pay this massive loan of over 6 arba in a phased manner. The long-term loans 1, 2, and 3 will be paid over 12 years. Similarly, long-term loans 4 and 5 are scheduled to be cleared in 15 years. The medium-term loan has to be cleared within the next 5 years. The company is paying both principal and interest in 60 installments.
Electricity Production and Tariffs
The project aims to produce 21 crore 93 lakh 90 thousand 18 units of electricity annually. Out of this, they expect to produce 3 crore 90 lakh 71 thousand 30 units during the dry season and 18 crore 3 lakh 18 thousand 988 units during the wet season. They have a take-or-pay agreement with the Nepal Electricity Authority. To make the project more efficient during the dry season, the company is also mixing water from the Darim Gad Small Hydro Project, this help to increase production when river water is low.
Currently, the project is running at very good capacity. In Baishakh 2082, the production efficiency was 93.82 percent, in Ashar it was 98.36 percent, in Shrawan it was 97.63 percent, and in Bhadra it reached 100.06 percent. In Mangsir, it was 77.92 percent and in Poush, it was 78.01 percent.
Under the contract with NEA, the company gets Rs 8.90 per unit in the dry season and Rs 5.09 per unit in the wet season. After one year of commercial production, the company can increase the power price by 3 percent every year up to eight times. After all eight escalations, the dry season rate will reach Rs 10.42 and the wet season rate will be Rs 5.95 per unit.
Financial Performance and Future Projections
If we look at the unaudited financial report till the end of Poush of this fiscal year, the earnings per share of the company is Rs 8.65 and the net worth per share is Rs 113.22. The accumulated profit of the company is Rs 26 crore 37 lakh 58 thousand. By the end of this fiscal year, the company projects its accumulated profit to reach Rs 40 crore 44 lakh 78 thousand. The company also projects its EPS to reach Rs 10.99 and net worth per share to be Rs 114.19 by then. For the fiscal year 2084/85, the company plans to distributing 10 percent dividend to its shareholders.
Promoters and Board Management
Sanigad Hydro has strong backing from big business houses of Nepal. Shiv Shankar Hydro Investment owns 16.57 percent, Alpha Plus Vision Fund owns 12.53 percent, Sanigad Hydro Investment owns 11.70 percent, Jalanjali Investment owns 10.19 percent, and Varun Investment owns 9.92 percent shares. Other big institutional investors include Prabhu Mahalaxmi Insurance, Sudurpaschim NRN Investment Fund, Everest Gas, Prima Gas, and Trishul Gas. The board and management team is very experienced in this sector, having previously managed projects like Kalanga Hydro, Bungal Hydro, and Panchthar Power.
The chairman of the board is Umesh Shrestha, who is the founder of Little Angels School and former chairman of Prime Commercial Bank. He holds 8 lakh 97 thousand 250 shares. The managing director is Rajesh Kumar Shrestha, former chairman of Century Commercial Bank and former director of Salt Trading Corporation. He holds 4 lakh 4 thousand 506 shares. Other directors include Sudip Ghimire, who is associated with Everest Gas and Nepa Petroleum and holds 4 lakh 67 thousand 120 shares. Another young director is Nabin Bohara, who is the managing director of Shiv Logistics and holds 3 lakh 37 thousand 500 shares. Having such experienced leaders from banking and business sectors can help to maintain strong financial discipline.
Lastly, ICRA Nepal has given the issuer rating of ICRANP-IR BB- Minus to the company. This rating indicates a moderate risk for the company when it comes to meeting its financial obligations on time.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
