Mailung Khola’s Second Phase IPO Opening Today After 3 Years; Why is the Rating So Poor? How Exactly is the Company Performing?

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Mailung Khola Jaavidhyut Company Limited (MKJVCL) was incorporated in July 2002 as a private limited company. Later in August 2014, it was converted into a public limited company to facilitate public participation. MKJVCL is promoted by four institutional promoters and 155 individual promoters. M/S Sopan Company Limited is the major promoter of Mailung with a 39% stake as of now. The company is operating a 5 MW project at Haku VDC in the Rasuwa District in Nepal.

Mailung Khola Jalavidhyut is issuing 736,286 units of ordinary shares worth Rs. 7.36 crores to the general public from Shrawan-14 at a par value of Rs. 100. This is 20% of total capital. The early closing date of this IPO issue is on Shrawan-18, 2077/78. If this issue is not subscribed till Shrawan-18, 2077/78 then the issue will be extended up to Shrawan-28, 2077/78.

From the total of 736,286 units, 14,726 units i.e. 2% are for the Employees. 5% of the total units i.e. 36,814 units are for the Mutual Fund of the company, and the remaining 684746 units are for the general public.

Applications can be placed for a minimum of 10 units and a maximum of 100,000 units.

Siddhartha Capital Limited has been appointed as the issue manager for the IPO issuance.

Mailung Khola Jalavidhyut Company Limited:

Particulars	Percentage	Units	Amount
Total Capital	100%	3,681,430	368,143,000
Total Issue	20%	736,286	73,628,600
Employees	2% of IPO Units	14,726	1,472,600
Mutual Fund	5% of IPO Units	36,814	3,681,400
General Public	93 of IPO Units%	684,746	68,474,600
Issue Manager	Siddhartha Capital Limited
Issue Open Date	Shrawan 14,2078
Issue Closing Date (earliest)	Shrawan 18,2078
Issue Closing Date (Late)	Shrawan 28,2078
Minimum Application	10
Maximum Application	100,000

ICRA Rating:

ICRA Nepal has assigned an [ICRANP] IPO Grade 5 to the proposed initial public offering (IPO) of Mailung Khola Jal Vidhyut Company Limited (MKJVCL), indicating poor fundamentals. 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.

The Grade-5 for the company mainly factors in the weak earnings profile of the company due to low plant load factor(PLF) which is basically a degree of power plant’s capacity utilization for a period of time. The lower the PLF lower capacity utilization resulting in lower operational efficiency. This has resulted in a significant loss of revenue for the company.

The other factor this grading considered is the penalty for the project due to delay in the commercial date of operation (COD). This penalty is being paid out from monthly revenues which have impacted the cash flows for the company.

(Source: ICRA Nepal)

Capital Structure:

Capital Structure
Authorized Capital	750,000,000.00
Issued Capital	368,143,000.00
Current Paid-Up Capital	294,514,400.00
Capital after IPO Issuance	368,143,000.00

Shareholding Structure:

	Number of Shares	Amount	Percentage	Remarks
Promoters Shareholders	2,577,000.00	257,700,000.00	70%	Already Issued
Project affected locals	368,144.00	36,814,400.00	10.00%	Already Issued
General Public	736,286.00	73,628,600.00	20.00%	To be Issued

Board of Directors:

Board of Directors
Name	Position
Dr. Birendra Prassad Mahato	Chairman
Mr. Gore Sherpa	Director
Dr. Tara Prasad Prokharel	Director
Mr. Basanta Chandra Marahatta	Director
Mr. Phulmu Sherpa	Director

Project:

Name of Project	Mailung Khola Jalavidhyut Aayojana
Type of Project	Run-of-River
Installed Capacity	5 MW
Total Cost	902,935,496
Cost per Megawatt	180,587,100
Commercial Operation Date (COD)	Ashad-19/ 2071
Project handover to NEA Date	2094 BS

Use of funds:

Usage Area	Amount
Payment of Bank Loan	73,628,600.00

Financial Highlights:

Particulars	Actual				Estimated*
	2074/2075	2075/2076	2076/2077	2077 Chaitra End	2077/2078	2078/2079	2079/2080
Total Paid-Up Capital (‘000)	294,514.00	294,514.00	294,514.00	294,514.00	368,143.00	368,143.00	368,143.00
Reserve & Surplus (‘000)	-71,610.00	-64,760.00	-12,098.00	8,796.00	74,553.00	76,814.00	76,267.00
Debt (‘000)	581,249.00	641,727.00	607,799.00	577,805.00	526,624.00	483,844.00	436,244.00
Revenue (‘000)	65,053.00	130,618.00	138,347.00	101,177.00	220,975.00	132,973.00	138,373.00
Interest Expenses (‘000)	61,777.00	63,667.00	48,929.00	36,596.00	43,374.00	37,225.00	33,728.00
Net Profit (‘0000	-12,663.00	6,850.00	52,662.00	35,097.00	105,058.00	29,872.00	36,267.00
Earnings per share (Rs.)	-4.30	2.33	17.88	11.92	28.54	8.11	9.85
Net worth per share (Rs.)	75.69	78.01	95.89	102.99	120.25	120.87	120.72
Debt-Equity (times)	2.61	2.79	2.15	1.90	1.19	1.09	0.98
Return on Equity (%)	-5.68%	2.98%	18.65%	11.57%	23.73%	6.71%	8.16%

(NOTE: The estimated figures include the other income from investments)

Trends of key parameters:

Reserve

(2077* is unaudited numbers till Chaitra)

Profitability:

(2077* is unaudited numbers till Chaitra)

How much to apply for?

When we observe the current scenario, investors have shown a high level of confidence, which is shown by the huge demand for the last few months. Almost all of the stocks have been trading significantly higher than they were before lockdown. Nonetheless, the rating received for this IPO issue isn’t anything like what we saw in recent issues. It will be interesting to observe whether investors will study the company prospectus and take informed decisions, or whether the bull market will absorb anything that comes. After all, Mr. Market is always right.

When we look at the current trend of IPO in the market, we see that more than 21 lakhs of investors have been applying in the recent issue’s which is a huge number when we compare it with past applicants. This shows that, even if a quarter of this number applied for the issue of Mailung Khola Jalavidhyut Company Limited (MKJVCL), the issue will be oversubscribed. Since the “10 kitta rule” still holds true for IPO; 68,474 applicants will be lucky enough to get the 10 unit shares of Mailung Khola. So, it is advisable to apply only 10 units.