"IPO Grade 3" rating assigned to Rs 2.04 arba FPO of Butwal Power Company

ICRA Nepal has assigned  “[ICRANP] IPO Grade 3” rating to the Further Public Offering (FPO) of Butwal Power Company Limited (BPCL), indicating average fundamentals . BPCL is issuing FPO of 4,081,000 units equity shares of face value Rs 100 each at a premium of Rs 401 (issue price of Rs 501 per share). The issue has already received approval from Securities Board of Nepal (SEBON). The assigned grading factors in strong parentage, diversified business profile and long track record of operations of BPCL, which operates two hydroelectric projects (HEPs) with aggregate capacity of 21.4 MW in Nepal, owns and operates a distribution network (in 64 villages across 4 districts in western Nepal) and also has investments in other hydro power related businesses. Although the distribution business of BPCL is loss making on account of low approved tariff, earnings from operating projects coupled with dividend from investee company (Himal Power Limited, HPL) have resulted in stable earnings stream for the company. Consequently, there has been a sustained reduction in debt levels in the last four years, despite upgradation capex undertaken by the company; resulting in comfortable capital structure and increased financial flexibility. Concerns although emanate from the execution of sizeable project works (in relation to the current operational capacity), namely 37.6 MW Kabeli A HEP and 30 MW Nyadi HEP, by BPCL under subsidiaries Kabeli Energy Limited (KEL) and Nyadi Hydro Limited (NHL) respectively. Hydro power development entails several execution challenges such as difficult terrain, adverse climatic conditions, and weak geology. These challenges will be further enhanced due to simultaneous execution of the two projects and would thus require increased project supervision and management control for commissioning of the projects within the budgeted time and cost constraints. Income of BPCL will be significantly affected by the decline in dividend income from HPL from FY 2020-21 onwards (as 50% of the project ownership in Khimti HEP, being operated by HPL and only revenue source of the company, will be transferred to NEA as per the terms of its PPA). Timely commissioning of the under-construction projects will thus be crucial in continued stability of BPCL earnings. 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. Butwal Power Company has posted net profit of Rs 7.22 crore in the first quarter of FY 2074/75.