Want To Invest in Chilime Hydropower Company but No Time To Analyze? Read Detailed Analysis of Financial Situation and Project Status

Company Profile:

Chilime Hydropower company limited was incorporated in 1995. Chilime owns and operates 22.1 MW power plants commissioned on August 25, 2003, and located in the Rasuwa district. The plant started its commercial generation from 8^th Bhadra 2060 (24^th August 2003). The company sells bulk electricity to NEA at the long term PPA price.

Equity Structure of CHCL

Board of Directors:

Situation of Hydropower in the country:

With the first hydropower project “Pharping Hydropower Station” with an installed capacity of 500 KW to 98 hydropower projects (Power Trade Department) with an installed capacity of 1,233.1 MW. With NEA declaring Nepal as load-shedding free in 2018, Nepal has come very far in terms of energy generation and utilization and there are different projects which are being constructed and yet to be included in the grid.

It is estimated that a minimum of 1,300 MW will be connected to the power system in the upcoming fiscal year. As per NEA, the total connected capacity of the country will reach 2,533 MW after the subsidiaries run by NEA of 600 MW, including 456 MW from Upper Tamakoshi and 700 MW from the private sector. To inform that the electricity of consumption in Nepal will be higher, the government had projected total demand of 2,300 MW in 2020-2021.

Projects:

Chilime obtained the license for the generation of 22.1 MW Hydropower Plant from the then Ministry of Water Resource (Current: Ministry of Energy) for a period of 50 years (i.e. from 26 Shrawan 2054, 10 Aug 1997 to Asadh end 2104, Mid July 2047), therefore the useful life of plant assets (which need to be handed over at the end of the BOOT period) cannot exceed 50 years even if the economic life of the assets is more, as the entire generation unit needs to be transferred to the Government of Nepal at the end of this license term.

Aside from the main project of 22.1 MW, the company has 4 other subsidiaries which are mentioned below:

As per the report published by the company, Chilime Hydropower invested a sum of Rs. 1.43 Arba in Sanjen Jalavidhyut holding a stake of 39.36%. Sanjen Hydropower is currently constructing two major hydropower projects namely Sanjen upper HEP (14.8 MW) and Sanjen HEP (42.5 MW). As per the third quarter report published by Sanjen Jalavidhyut, Sanjen Upper a total of 88% has been completed and 78% of the work has been competed for Sanjen HEP. As per the agreement with NEA the company will sell a total of 32.43 crores units per year.

Since the projects are yet to be operated, the company reported net loss of Rs. 2.12 crores in the third quarter of FY 2077-2078.

The management further clarifies investors that the company has been receiving loans from Employee Provident Fund at an annual interest rate of 9.75%. The company has been paying its interest every three months. Since the company is yet to issue an additional 10% share (delayed due to the ongoing Covid-19 situation) to local people including people of Rasuwa, the company has taken an equivalent loan amounting to Rs. 35 crores at a rate of 7.09% from NMB Bank which will be paid after the issuance of shares.

As per the report, the contractors are not able to bring in the necessary equipment’s for the mechanical works which might delay the completion/operation date of the projects.

Chilime Hydropower has a total investment of Rs. 2.22 Arba in Madhya Bhotekoshi Jalavidhuyt Company Limited which makes up 38% stake in the company. The company has an installed capacity of 102 MW. Completing about 60% of the project, the company has estimated that the project completion date of mid 2077/2078 and start selling the electricity to NEA but due to heavy flooding on 8^th July, 2020 causing heavy damage and losses and the current economic situation the project completion date will be delayed.

Chilime Hydropower has an investment worth Rs. 2.24 Arba in Rasuwagadhi Hydropower which sums up to a total stake of 32.79%. Rasuwagadhi has a total installed capacity of Rs. 111 MW. The project completion status is 78% which is expected to be completed by the end of FY 2077/2078.

Apart from above projects the companies mentioned below are studied by the Chilime’s subsidiary Chilime Engineering and Services Co.Ltd.

Financial Performance and other information:

Profitability Ratios:

The company has been able to grow its revenue by a CAGR of 1.45%. For the last 5 years the company has shown stagnant revenue which has impacted the bottom line over a long haul. The margins of the company have come down in the last few years which have affected the profitability indicators ( mentioned below).

The decline in the company’s bottom line in recent years has been affected by different factors; some of them being slower growth in revenue itself and not being able to cut the cost relative to the growth of revenue. Also, the company’s profitability is affected by the increasing cost in royalty payment which has increased to 10% of Net Revenue with Rs. 1000 per KW of installed capacity which was 2% of net revenue with Rs. 1000 per KW of installed capacity before FY 2075. This increase is because the project has completed 15 years of operation. The decrease in net profit is mainly contributed by an increased royalty and increased tax liability amount in the last 2 fiscal years.

Key Ratios:

The steep trend of Earnings per share is mainly because of the stressed profit and increased capital of the company which has increased to 6 crores unit from 3 crores in FY 2073.

Since Chilime Hydropower had stagnant revenue but increased cost from FY 2075 with royalty increment to 10%, the margins has been squeezed to 63.69% till the third quarter of FY 2077-2078.  

As of Return on Equity (ROE), the ratio came down drastically which might raise a question for investors since this shows inefficiency by the management in terms of utilization of shareholder’s fund. However, it will crucial for investors to look into the final report of this FY.

Dividend History:

Conclusion:

With the current data in hand, it is obvious that the company’s financial indicators have been in stress because of increased costs and stagnant revenue for the last 5 years. This might pose a different scenario in the investment decision. However, it should also be noted that hydropower invests in different projects which have potential going forward.

In terms of Chilime Hydropower, its investments in 3 subsidiaries, which has a capacity of 270.3 MW might hold a positive factor. However, investors should note that the project is profitable once the project comes into full operation. Stating that, Sanjen Upper HEP is 88% completed and other two projects are 78% completed which leaves Madhya Bhotekoshi at 60% completion. Taking a deep dive into individual company’s reports, management clarifies to investors that the project completion might get delayed due to the ongoing situation in the country. Chilime also might face delayed income from the subsidiaries due to various external uncertainties in the way of developmental works.

Investors should also note that being Run-of-River projects, their efficiency relies highly on the flow of rivers. And due to seasonality, the company would be highly efficient in the rainy season but less efficient in another season in terms of electricity generation.

For now, investors should watch the profitability levels of the company closely since it reflects the management strategies going forward.