Are you thinking to invest in Butwal Power Company ? Know in detail about its performance

Sector: Hydropower

Symbol: BPCL

No. of shares outstanding: 26,846,105 units

Introduction:

Butwal Power Company Limited (BPCL) is a leading hydropower company involved in the generation, transmission, and distribution of electricity. It was established in 1966 as a private company with an aim to enhance capacity development in the hydropower sector. Later, it was converted into a public limited company in 1933 and a decade later it was again converted into a public-private partnership (PPP). It is headquartered at Buddhanagar, Kathmandu. It has a combined operating capacity of 17.1 megawatts (MW) through its two plants in western Nepal.

BPCL operates its various subsidiaries like hydro lab private limited, Hydro-consult Engineering (HCE), BPC services. Through these subsidiaries BPC is involved in the operation & maintenance of power plants, consulting engineering of hydropower and infrastructure projects, manufacturing and repair of hydro-mechanical and electro-mechanical equipment for power plants.

 (Source : https://www.bpc.com.np/about-us/shareholding)

Financial Ratios and Other Information:

The company has been able to increase its reserve and surplus to Rs. 2,693,190.66 which has certainly increased the shareholder's value. It has been able to increase its reserve and surplus at a compounded annual growth rate (CAGR) of 9.22%.

Profitability Ratio:

The company has been able to increase its sale of energy from 24.1 GWh to 31.48 GWh in the 6-year period at a compounded annual growth rate of 4.55%. This growth is seen mainly due to the increase in customers over time. The company has been mostly profitable by dividend income from its investments in associates where Himal Power Limited has highly contributed in FY19. The company has been able to increase its net Profit at a compounded annual growth rate of 9.14%. This is mainly due to management’s ability to control the operating expenses. Due to the higher dividend income, the company’s Net Profit margin has consistently stayed much higher.

Key Ratios:

BPCL has done fair in terms of Capital Employed. In FY19 the company had Return on Employed at 11%. The company has also been able to increase its Net worth overtime which has brought about a positive signal for most investors. It also has done a fair job in increasing its Earnings per share which has grown at a compounded annual growth rate (CAGR) of 8.89%.

The company sits in a good liquidity position with a current ratio of 3.9 where the minimum requirement is 1.5X.

The company has done well in terms of use of debt and it has a suitable debt-equity ratio of 0.05 in FY19 where the acceptable ratio is 0.5.

Dividend History:

Some Useful Information taken from SSPRO:

Historical Price Movement:

Stock Performance:

Future Outlook:

The company has been benefiting from its investments in its subsidiaries and associates and the most promising investment has been in Himal Power Limited which has contributed about 96% in dividend income till FY 2076/77.

However, the 50% ownership structure of Himal Power Limited (Khimti Power Plant) is going to transferred to NEA from FY 2077/78, which will reduce the holding of Butwal Power Company in the company to 8.44% from present 16.88%. Due to this dilution in holding, BPCL will be facing a deep cut in its dividend income by half of the margin. Also, the signing of a new PPA after the transfer of half ownership to NEA might be revised which will have an impact on BPCL’s dividend income.

The company’s other projects; 30 MW Nyadi Hydropower Project (NHP) which is 75% completed as on November end 2019, 37.6 MW Kabeli-A Hydroelectricity Project’s long headrace tunnel which is yet to be excavated and run its operation, 282 MW Manang Marsyangdi Hydropower yet to receive the approval for carrying out supplementary EIA, 600 MW Upper Marsyangdi-2 Hydropower Project yet to be developed, 7.9 MW Chinkhola Hydropower Project and 160 MW Mugu Karnali Hydropower Project are yet to be completed. With these incomplete projects, the company will be facing a delay in the investment income.

Conclusion

BPCL being the parent company of diverse subsidiaries has shown its ability to excel in the industry. With experienced board members and an able management team, the company shows a fair growth in the foreseeable future.

At the current price, investors can expect a decent earnings yield which is very much attractive to any investors who are willing to hold the stock for a longer period which will allow their initial investment to grow. If the company shows the sign of growth and increases its EPS at the same CAGR at 7.89% then its yield on initial investment will be much better.

However, the management has to be able to convince investors that the company will have a growth in the near future.

There is no doubt that the investors are attracted to the stock which has a relatively strong fundamental, pays a handsome dividend, and shows a fair amount of growth.