IPO of Ngadi Group Power Limited

Ngadi Group Power Limited is the next hydropower company that is going to be listed in Nepal Stock Exchange. Here is my sincere opinions regarding the company, its project and speculated share price when listed in Nepal Stock Exchange.

1) PROJECT BACKGROUND

Ngadi Group Power Limited owns a 5 MW Siuri Khola Hydropower Project. It lies in Bhulbhule VDC, Lamjung district. It is conceived as a run-of-river project with a 458.88 gross head and a design discharge of 1.4 m3/s.

A maximum flow of 0.42m3/sec from Liuri Khola is diverted to Siruri Khola headworks by 82m channel. The other major components of this project are two 1.5m x 0.65m (WxH) side intake, an 864m headrace pipe, a 5 m (dia) with 10 m (height) surge tank, an 807m penstock pipe, a surface 16.9 x 9.9 x 9.14 m (LxBxH) powerhouse with two Pelton turbines and an 8 km long 33 kV transmission line. 

a. Salient feature of the project.

Project Details
Development Region	Western Development Region
Hydrology
River	Siuri Khola
Catchment Area at Intake	21.1 km2
Design Flow (Q65)	0.57 m3/s
Design Flow	1.4 m3/s
Riparian Release	0.034 m3/sec
Liuri Headworks
Liuri Intake
Diversion structure	Free flow stone masonry weir
Liuri Collection Canal
Canal Type	Rectangular Stone Masonry Open canal
Siuri Headworks
Siuri Intake
Diversion structure	Free lined weir
Length of weir	12.93 m
Height of weir	0.6 m
Undersluice	Rectangular Vertical Lift Gate
Size of Sluice gates(b × h)	1.5 m × 1.0 m
Connecting Channel
Canal Type	Rectangular RCC closed canal
Siuri Gravel Trap
Canal Type	Rectangular with sloping bottom type
Siuri Desander
Type	Double Chamber Dufour Type
Headrace Pipe
Conveyance Length	864 m
Diameter	1.2 m
Thickness of Pipe	8 mm
Surge Tank
Type	Cylindrical Tank connected to Headrace with vent pipe
Penstock Pipe
Type	Welded Surface Penstock
Length	807 m
Thickness	8 - 22 mm
Power house
Type	Surface
Tail race
Type	Covered Rectangular RCC Canal + RCC Hume Pipe
Turbine
Number of Units	2
Type of Turbine	Pelton (Impulse)
Transmission Line
Transmission Length	8 km
Transmission Voltage	33 kV
Interconnection Point	Nyadi, Lamjung
Power and Energy
Installed Capacity	4950kW
Gross Head	458.88 m
Rated Net Head	452.42 m
Annual Energy Generation	32.10 GWh
Dry Season Energy	6.68 GWh
Wet Season Energy	25.42 GWh

b. Project cost

The completion cost stood at NPR. 931.24 million making NPR. 186.2 per MW. With less than 1,600 meters waterways and a high head of 450 meters, the project cost seems to be in the higher side.

c. Machinery

Electro-mechanical equipment is supplied by Qiankang Allonward Hydro Equipment Co. Ltd. China. The reputation of Chinese machine is not so good. Many hydropower companies that have installed Chinese machinery are facing problems, mainly penalty to NEA. Inefficient machinery reduces the actual generation of energy.

One of the problematic areas is the transmission line. Loss is inevitable when power is evacuated from 33kV single circuit line.

d. Contract energy
The total contract energy is 32,100,409 kWh. This makes a net Plant Load Factor (PLF) of 73.29 percentage. This is exceptionally well since hydropower these days have a plant factor of 60 to 65 percent. The higher PLF means more sellable energy.

However, the actual production does not match the contract energy. The project operated at below 60 percent plant factor in the past two years.

e. PPA rates.

The Power Purchase Agreement (PPA) was completed on 2007 for 900 kW designed at Q65% at NPR. 5.52 per kWh during dry season (4 months) and NPR. 3.90 per kWh during wet season (8 months). There is no escalation at all.

The project was later updated at Q40% design and the PPA for energy generated by the additional capacity of 4,050 kW was done on January 2009 at NPR. 7 per kWh during dry season (4 months) and NPR. 4 per kWh during wet season (8 months). This set of PPA is entitled to get nine escalations from the date of commercial operation at 3 percent (simple growth).

Further, the project is entitled to get the newer PPA rates for entire energy generation till October 2019 at NPR. 8.4 per kWh during dry season (4 months) and NPR. 4.80 per kWh during wet season (8 months). Five escalations from the date of commercial operation at 3 percent (simple growth) is available. This means, NEA will use the base PPA rates (as done for 900 kW and 4050 kW) and pay the difference of NPR 4.80 and NPR 8.40 till October 2019.

2) SHARE CAPITAL

Authorized capital of the company is NPR 667,000,000 while the issued capital is NPR. 486,868,000. The detail breakdown of the issued capital is presented in the table below.

Details	Amount (NPR)	Percentage
Promoter	340,807,500	70%
Local	48,686,800	10%
General Public	97,373,700	20%
Total Issued Capital	486,868,000	100%

 

3) MANAGEMENT TEAM

Mr. Bhogendra Guragain, chairperson, leads the company. 

Mr. Shailendra Guragain is the managing director. He is a renowned figure in the field of Nepali hydro. The recently listed Barun Hydropower Company Limited belongs to him. 

4) KEY FINANCIAL HIGHLIGHTS

	Actual
Fiscal Year	2012/2013	2013/2014	2014/2015
Share Capital (000)	325,841	325,841	340,808
Reserves and surplus (000)	(87,774)	(99,104)	(26,493)
Long term debt (000)	634,560	618,660	593,160
Investment (000)	-	-	32,939
Revenue from electricity sale (000)	60,804	106,582	179,967
Other income (000)	-	800	483
Penalty to NEA (000)	16,327	5,208	1,751
Profit/loss (000)	(73,912)	(11,330)	72,611
Net Worth	73.06	69.59	92.23
EPS	-22.68	-3.48	21.31
* Source : Company’s audit report.

The company started its commercial operation on 2012/10/16. During this fiscal year (9 months operation), it incurred a loss of NPR 73.9 million. 

It carried on the same legacy and recorded a loss of NPR. 11.3 million in the fiscal year 2013/2014  in spite of supplying electricity all year round. Per MW revenue stood at NPR 21.3 million where project these days are earning up to NPR 35 million per MW in the very first year of operation with newer tariffs.

It bounced back in the fiscal year 2014/2015 as it received NPR 37.7 million as a differential PPA rate for the energy sold in the past two years.

5) IPO

The company is floating 10% of its issued capital to project affected area (residents of Lamjung district), a mandatory requirement of Nepal government. After the local issuance, 20 percent of the total issued capital will be offered to general public. NIBL Capital Markets Limited is the issue manager.  

Unlike IPOs of other hydropower projects that do IPO during construction phase, the project of this company is in operation. This means, it is actually generating revenue.

The IPO collection will be used to repay its long loan, according to its IPO prospectus. 

6) 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 4+", indicating below average fundamental, to the proposed initial public offering (IPO) of Ngadi Group Power Limited. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. For the Grading categories 2, 3 and 4, the sign of + (plus) appended to the Grading symbols indicate their relative better position within the Grading categories concerned. Thus, the Grading of 2+, 3+ and 4+ are one notch higher than 2, 3, and 4 respectively.

7) MY VERDICT

This is one of the best projects I have ever seen. With less than 1.6 km waterways and a head of 450 meters, this is anybody's ideal project. Sadly, this is not reflected in the project cost. 

Whether you construct project at NPR. 120 or 190 million per MW, energy generation is not going to be changed. So the basic principle is to tighten the construction cost if you want to enjoy a super normal profit. For that, it missed the boat.

Now, the main challenge is to supply the contract energy. It has been unable to supply what it is actually designed for. Delivering a plant factor of less than 60 against a design of 73 percent has resulted in paying fines in addition to revenue loss. 

NEA penalizes if a project fails to provide 80 percent of Monthly Contract Energy or Availability Declaration (whichever is less). The penalty amount is, however, in a decreasing trend. 

"It doesn’t make any sense to pay penalty to NEA when hydropower projects are constructed to receive money from it." 

Similarly, the older PPA rate is going to hurt its earning in the long run although a newer tariff till October 2019 is a life saver. 

Finally 

After the overwhelming response shown by investors in the recent hydropower IPOs, I am pretty sure this one will be oversubscribed too. Assuming the current situation of hydro stocks, my bet is NPR. 300 to 350.

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