Know the status and financial performance of Sanima Mai Hydropower and its investment on different hydro projects

Company Information:

Sanima Mai Hydropower Limited (SHPC) was incorporated in 2008 as a private company and later on 16^th March 2012 was converted into a Public Limited Company. SHPC manages Mai Hydropower Project (MHP) with an installed capacity of 22 MW and Mai Cascade Hydropower Project (MCHP) with an installed capacity of 7 MW in the Illam District.

 Board of Directors:                                                    

Projects

As per the financial report published by the company, Sanima Mai Hydropower Limited has two major projects under its management; one of which is Mai Hydropower Project having an installed capacity of 22 MW. This company came into operation in 2015. However, the Required Commercial Date of Operation (RCOD) was 2014 but the operation was delayed due to force majeure condition. As per PPA, the company sales per unit electricity at the rate of Rs. 7 in Dry Season whereas Rs. 4 in wet season. The total cost at completion was Rs. 3.29 Arba.

The other project under the company is the Mai Cascade Hydropower Project along Mai river in the Ilam District of Eastern Nepal. Mai Cascade has an installed capacity of 7 MW which started its commercial operation from Feb-12, 2016. The company was required to operate the project from July 17, 2015. However, due to the force majeure condition, the company’s operation was delayed. The company has a valid license of 30 years after which the government of Nepal will be taking over the project.

The company currently runs two major projects with a combined installed capacity of 29 MW. Apart from these 2 projects, the company has been developing other major projects which are yet to be completed. They are mentioned below:

 Financial Performance and other information:

On the payout front, the company seems to not have promoted it much till the date because the company was highly focused on investing the money that is generated in different projects, which will enable the company to generate higher returns for the company and increase the shareholders’ value in the future.

The company shows an increase in Reserves which could be further used to expand the company’s operations or payout dividends in the future. The increasing reserves have also signaled that the company has been profitable throughout the year for 5 years of operations.

The overall operating efficiency of the company has been satisfactory with consistent profitability. Despite the fluctuation in electricity generation, the company has been able to maintain the steady growth on the revenue front with a compounded annual growth rate (CAGR) of 16.43% for the last 5-years.

Located in geographically challenging terrain, it is prone to unprecedented natural calamities. However, the company has been able to take action accordingly and manage the power plants which can be seen from the profitability of the company over time.

The net profit of the company has been fairly consistent. However, the company has reported negative net profit in 2016 because the the company had to deal with uncertainties leading to under production of electricity and face higher costs. The 132 KV Kabeli Transmission line was not completed despite the fact that Mai Hydropower (22 MW) was already operating to its full capacity which led to lower revenue collection in the year. Even though Mai Cascade (7 MW) was into operation during the time, drought for an extended period in the river (decrease in water level) led to the under-production of electricity leading to low revenue collection from operation for the FY 2016. Lower revenue collection has been one of the main reasons for the decrease in the bottom line.

Nevertheless, the company has been able to maintain its profitability over a long haul which has shown the positive side for the company.

With the fluctuations in the revenue side, the company’s profitability ratios have also somewhat been affected. With the decrease in the bottom line in FY 2018 and FY 2019, the return on equity has also been affected (decreased). This decrease shows that the management has not been able to manage the shareholder's money in an efficient way. However, the company has increased its paid-up capital to Rs. 2.55 Arba from Rs. 1.05 Arba (including Right Shares issued to invest in Sweta Ganga Hydropower) which has diluted the returns to the shareholders. Maintaining profitability with an increasing capital will be key for the company in the coming years.

On the leverage side, the company has a gearing ratio of 0.71 which has decreased from 3.31 in 2016. The company expects to pay off the remaining debt related to the construction of Mai Hydropower (22 MW) and Mai Cascade Hydropower (7 MW) within 6-7 years (as per 2076 annual report).

Being a highly capital-intensive business, maintaining its capital to generate profits is a crucial role for the company. In this case, Sanima Mai has been able to generate fair and consistent Returns on its employed capital. In the fourth quarter report of FY 2020 published by the company, the return on capital employed has stayed at 11.66%. However, it will be key for prospective investors to watch this number. This shows how able the management is in utilizing the capital the company has.

Dividend History:

Future Outlook:

The company currently runs only 2 hydropower projects; Mai Hydropower Project (22 MW) and Mai Cascade Hydropower Project (7 MW) with a combined capacity of 29 MW. Besides these two projects, the company has also invested their money on different projects; Sanima Middle Tamor Hydropower Project (73 MW), Sweta Ganga Hydropower (28.1 MW), Mathilo Mailung Khola (14.3 MW), and Tamor Sanima Energy (285 MW) are yet to be completed which have been estimated the completion till 2078. Also, the company is expected to invest Rs. 50 Lakhs in Bavari Construction Pvt. Ltd which is involved in the construction of hydropower projects. However, when we observe the current scenario, the completion date might be extended which might have an impact on the investment income for the company.

There might be various risks attached to all the projects like challenging terrain, adverse climatic conditions, political instability which might hinder the generation capacity of the hydropower. Since all the projects which are being constructed are are run-of-river whose efficiency highly relies highly on the flow of water. Due to this characteristic of the project, the generation efficiency will be higher in the rainy season whereas the capacity will be lower in the dry season.

There is a huge demand for electricity with a total customer of 4,217,710 in the country which is yet to fulfill. It is also projected that the demand for electricity will reach 2,300 MW in 2020-2021 in the country and Power Trade with India which the government is working on might show a growth in the hydropower industry as a whole in the coming days.