Upper Tamakoshi's Project Cost Increased by 154.55%; Operating Income at NPR 7,174 Million for FY 2022

ICRA Nepal has assigned an issuer rating of [ICRANP-IR] BB to Upper Tamakoshi Hydropower Limited (UPPER).

The company is set to build a run-of-river, Rolwaling Khola HEP in the Dolkha region of the Bagmati Province of Nepal, with a budget of NPR 9.5 billion and a Debt : Equity ratio of 70:30.

According to the ICRA ratings, the company has generated an operating income of NPR 7,174 Million for the fiscal year. There are numerous reasons why the company's growth is constrained. Here, we will look into the major highlights.

The company’s growth is restricted by the high project cost, comparatively low tariff rates, short project life of 5 years due to delayed commissioning, and the expiration of the energy generation license, all of which are anticipated to depress the return indicators and coverage ratios of the company.

Given the project's infancy, the Rolwaling Khola HEP, which contains a standalone 20.66 MW project as well as a water diversion to the catchment of a 456 MW project, also carries an inherent risk regarding project execution.

Given the company's modest internal cash accruals and sizable short-term loans/creditor payables on the balance sheet, it is projected that the 20.66 MW project will be commissioned using the company's internal cash accruals and the proposed rights issue. Also, 10.59 crore unit right shares at the ratio of 1:1 will be issued by the company to its shareholders.

Aside from its large debt and negative net value, the company also has issues with liquidity and high gearing, which could affect its ability to make timely payments on its debt commitments.

The company also had its project cost increased to NPR 196 million/MW from NPR 77 million/MW, an incline by 154.55%, limiting the benefits accruing from the economies of scale.

Apart from these challenges, the company is operating well and the Last Trading Price (LTP) of the company is Rs. 379.

About the Company:

Upper Tamakoshi Hydropower Limited, a public limited company established in March 2007, manages the 456 MW Upper Tamakoshi Hydroelectric Project in Nepal's Bagmati Province. As of mid-July 2022, the company had NPR 10,590 million in paid-up capital, which was held 51% by its promoters and 49% by the general public. As of the same date, the major promoters are the Nepal Electricity Authority (NEA) with a stake of about 41%, Nepal Doorsanchar Co. Ltd. (NDCL/NTC, with a stake of about 6%, Citizen Investment Trust (CIT), with a stake of about 2%, and Rastriya Beema Sansthan (RBS)  with a stake of about 2% as well.

The general public and Dolakha District locals holds 15% and 10% of the share, respectively. Employees Provident Fund (EPF) contributors, NEA & Company employees, and employees of lending institutions have a 24% portion of the remaining equity. Upper is the largest hydroelectric plant in Nepal, which is a project of national priority. The Project's funding comes exclusively from domestic financial institutions and companies.