Wednesday 12 August 2015

United Modi Hydropower Limited: IPO analysis.

United Modi Hydropower Ltd. is a registered public limited company established under the companies Act 2063 of Nepal, with an objective of promoting hydropower in Nepal through private investment.


Last update: 01 March, 2017

It was registered as a private limited company on 5th Mangsir 2064 (21st Nov, 2007) at Office of the Company Registrar, Nepal Government. It was later converted into a Public Limited company on 28th Chaitra 2070 (11th Apr, 2014). The Company is promoted by well-known Builders and hydropower entrepreneurs having long experiences in the related field, including the local people of the project areas.

Name
Position
Sukuntalal Hirachan
Chairman
Sudhir Pd. Timilsina
Managing Director
Mukunda Prasad Timilsina
Director
Krishna Prasad Acharya
Director
Ashish Thapa
Director
Narendra Ballav Panth
Director
Sunil Bhakta Shrestha
Director

1. STATUS
Currently, the Company has two projects in hand. The first is the Lower Modi-1 Hydropower Project (10 MW) which is in operation since November 2012. The second is the Lower Modi-2 Hydropower Project (10.5 MW), a cascade project. Both projects are located at Modi Khola, along the Pokhara – Baglung Highway in Parbat District in Dhaulagiri Zone of Western Development Region of Nepal. The road distance of the project sites from the capital Kathmandu is 280 kms. 

I) Lower Modi-1 Hydropower Project (10 MW)
The project is run of the river project at Modi Khola of Parbat district. The construction of the project started in early 2010 and was completed in August 2012. The project started generating electricity since November 2012

a. Salient Features of Lower Modi-1 Hydropower Project:
Type of Scheme
Run-of-River (RoR)
River
Modi Khola
Location
Chuwa, Kushma Parbat (Along Pokhara-Baglung Highway)
Power and Energy
Gross Head / Net Head
50 m / 46.25 m
Design Discharge
26 m3/sec
Installed Capacity
10 MW
Annual Energy
61.01 GWh
Hydrology
Catchment Area
575 km2
Design Flow
26.0 m3/sec.
Mean Annual Flow
55.9 m3/sec.
Design flood Q1,000
1123 m3/sec
Structures
Intake
Side Intake, 4 orifices (7.15 m3 x 4)
Settling Basins
Double Chamber, 0.2 mm, 100m x 10 m x 6.5m
Headrace Canal
Rectangular RCC, length 2101 m, size 4.8 m W x 3.25 m H
Forebay
Rectangular RCC, 50m x 10m x 6.5 m, Volume 3000 m3
Penstock Pipe
Steel, 60 m x 2 nos., Internal diameter 2.4 m
Turbine
2 units Francis Turbine
Tailrace Tunnel
Rectangular, Length 39 m
Transmission line
132 kVA Single Circuit, 8 km ( to NEA Dimuwa Substation – 23 Towers)
Construction Time Period
2.5 Years
Test Operation
Since 2069 Ashwin 18 ( 04 October 2012) Grid Connection
Commercial Operation (COD)
2069 Mangsir 09 (24 November 2012)















































b. Project cost
This project was completed at a cost of NPR. 2,114 million (NPR 214 million per MW) with a debt:equity ratio of 70:30. This is extremely on the higher side.

c. PPA rates.
The applicable PPA rates are 8.40 per kWh during dry season (4 months) and NPR. 8.40 per kWh during wet season (8 months). The project is entitled to get five escalations from the date of commercial operation at 3 percent (simple growth).

d. Contract energy
The total contract energy is 61.01 GWh. This makes Plant Load Factor (PLF) of 70 percentage which is extremely good. However, the project has not been able to generate energy no way near its designed PLF in reality. For the last two years, the PLF of this project is about 57%. This will result in revenue loss.

II) Lower Modi-2 (Cascade) Hydropower Project (10.5 MW)
Lower Modi-2 Hydropower Project (10.5 MW) is being developed as the cascade project of the upstream Lower Modi-1 Hydropower project. The project is almost ready for construction. The energy generated from the project will be evacuated to the national grid by 3 km, 132 kv transmission line to existing Lower Modi-1 switchyard and then on common system to NEA Modi Substation at Dimuwa, Parbat. The connection agreement is concluded with NEA, and the PPA is also concluded.

a. Salient Features
Type of Scheme
Run-of-River (RoR), Cascade of Lower Modi-1
River
Modi Khola
Location
Kushma, Parbat (Along Pokhara – Baglung Highway)
Power and Energy
Gross Head / Net Head
49.40 m
Design Discharge
26.0 m3/sec
Installed Capacity
10.5 MW
Annual Energy
62.15 GWh
Hydrology
Catchment Area
645 km2
Mean Annual Flow
55.9 m3/sec
Design flood Q100
1123 m3/sec
Key Developments:
 Survey License
Owned by United Modi Hydropower Ltd.
 Connection Agreement
 Concluded in November 2014
PPA
 Completed
IEE
Completed
Financial Closure
Final stage of completion

b. Project cost
The project with an estimated cost of NPR. 1,787 million (NPR. 170 million per MW) has received Letter of Intent (LOI) from Citizens bank international limited. Financial Closure is at the final stage.

c. PPA rates
The applicable PPA rates are 8.40 per kWh during dry season (4 months) and NPR. 8.40 per kWh during wet season (8 months).

d. Contract energy
The total contract energy is 62.15 GWh. This makes Plant Load Factor (PLF) of 67.4 percentage which is extremely good.

2) SHARE CAPITAL
Authorized capital is NPR 1,250,000,000 while the issued capital is NPR. 1,150,000,000. The detail breakdown of the issued capital is presented in the table below.

Details
Amount (NPR)
Percentage
Promoter
862,500,000 
75%
Local
     115,000,000
10%
General Public
     172,500,000
15%
Total Issued Capital
1,150,000,000
100%


3) KEY FINANCIAL HIGHLIGHTS
Actual
Fiscal Year
2070/71
2071/72
2072/73
Share Capital (000)
713,845
722,239
862,500
Reserves and surplus (000)
-48,716
-25,809
13,564
Long term debt (000)
 1,414,490
1,340,428 
1,192,384 
Revenue from electricity sale (000)
 277,333
271,274 
147,188 
Other Income (000)
919
5
127,674
Administrative Expenses (000)
14,172
17,892
20,019
Employee expenses (000)
11,917
12,869
14,562
Direct expenses (Royalty and Penalty)
10,028
9,232
7,586
Interest Expenses (000)
173,703
134,816
119,542
Profit/loss (000)
1,408
24,228
39,373
Net Worth
93.15
96.41
101.47
EPS
0.20
3.35
4.57
* Source : IPO Prospectus.

Projected
Fiscal Year
2073/74
2074/75
2075/76
Share Capital (000)
1,150,000 
1,150,000
1,150,000
Reserves and surplus (000)
35,338
41,972
61,131
Long term debt (000)
 1,118,724
1,876,372
2,295,136
Revenue from electricity sale (000)
 297,930
336,857
342,705
Other income (000)
50
-
-
Administrative Expenses (000)
31,084
34,042
35,356
Royalty (000)
6,969
7,757
7,874
Interest Expenses (000)
106,107
98,277
90,110
Profit/loss (000)
79,273
121,634
134,159
Net Worth
103.07
103.65
105.32
EPS
6.89
10.58
11.67
* Source : IPO Prospectus.


4) ICRA RATING
ICRA Nepal Limited (ICRA Nepal), the first Credit Rating Agency in Nepal, is a subsidiary of ICRA Limited (ICRA) of India.

ICRA Nepal has assigned "IPO Grade 3", indicating average fundamental, to the proposed initial public offering (IPO) of United Modi Hydropower Limited (UMHL).

5) IPO
The Company is floating 15% of its issued capital to the general public after issuing 10% of its issued capital to the local people few months back. NIBL Capital Markets Limited is the issue manager. The amount collected from the IPO will be utilized for the construction of 10.5 lower Modi-2 hydropower project.

6) MY VIEWS
i) The combination of higher per MW cost of the Lower Modi-1 Hydropower Project
(NPR 214 million per MW) and lower PLF (57% PLF in the past two years against the designed PLF of 70%) is the main reason why the Company has not been able to cross 5 EPS mark.

ii) Although the second project (Lower Modi-2 Hydropower Project) is claiming a PLF of 67%, I take this claim with a pinch of salt.

iii) The construction of Lower Modi-2 Hydropower Project will be much easier and cheaper than the first one since all the necessary infrastructures are already in the place. Also, I see no problem for power evacuation. The generated power can be evacuated through the existing substation.

iv) Unlike other hydropower companies which do IPO to repay its loan, the only intention of the Company is to use the IPO money for the construction of Lower Modi-2 Hydropower project (according to IPO prospectus). This is a good thing for investors.

v) Regarding the dividend prospects, I do not bother to forecast its dividend. First, Lower Modi-2 Hydropower project has not received the generation license yet so doing prediction of its total revenue at this stage makes no sense. Second, expecting dividend from new hydropower companies (compared to hydros’ glorious past) is irrelevant and it is not the fault of the Company. Hydro in Nepal is just a bubble. Yes the Company could have lower the construction cost of its first project to increase the profitability but it is too late.

Finally 
After the overwhelming response shown by investors in recent hydropower IPOs, I am pretty sure this one will be oversubscribed too. As for the share price when listed in NEPSE, I will leave it up to you to speculate. I know you are experts.



2 comments:

  1. This is Jason, I'm the person from the Chinese contractor who prvoide EM equipments for Lower Modi I HPP, hope it will be running in good condition.

    ReplyDelete
  2. is lower mocdi 2 cascade project cancelled ?

    ReplyDelete